Personal loans are well known for being flexible. The flexibility in terms of loan amount and repayment makes it one of the most used credit products of the present day. One can opt for any loan amount according to the requirement as well as can pay it off as per the convenience. The loan tenure of a personal loan ranges from 12 months to 60 months. A borrower can opt for any loan tenure within the range.
Though most of the lenders give the privilege to choose the loan tenure, the borrower should be much careful while finalising the loan tenure. The loan tenure has much impact on the loan. Personal loans of different tenure may impact you differently. In today’s article, we will learn how long repayment term impacts personal loans.
What is a Long Term Personal Loan?
A long term personal loan allows the borrower to opt for a longer loan tenure such as 5 to 7 years. A long tenure personal loan runs for a couple of years. The EMI amount of the loan will be lesser than short term loans. There are many benefits of choosing a long term personal loan but at the same time, the cons should not be overlooked. Here are the pros and cons of long term personal loans.
Pros of Long-Term Personal Loans
Enhances Loan Eligibility
When you opt for a longer loan tenure, it will help you to get a better loan amount. A longer tenure minimises the EMI amount so the repayment becomes easy. Before sanctioning any kind of loan, lenders do check if the borrower is able to pay off the loan easily. In the cases of low EMI amount, the lenders easily sanction a higher loan amount as the chances of defaulting becomes less.
Keeps the EMI Amount Smaller
As mentioned above, longer tenures minimise the EMI amount, it becomes easy for the borrower to pay off the loan. One can easily pay off the loan without making huge alterations in the monthly budget.
Helps to Build Credit Score
If you want to use your personal loan to improve your credit score, then a long term personal loan works best for you. The improvement of credit score needs a quite long span of time, so taking a long term personal loan and serving the loan with discipline makes your credit score improve.
Being Eligible for Top-Up Loans
A longer loan makes you eligible for a top-up loan as long as the tenure runs. A personal loan borrower becomes eligible for top-up loans after paying EMI of the first 12 months. So if your loan term is for 5 years, you can become eligible for a top-up loan for 4 years. But in case of short tenure loans, you lose the opportunity.
Cons of Long Term Personal Loans
Paying High Interest
The interest of a personal loan is calculated in a compounded way. It means that a longer tenure will attract more interest payment. Personal loans are generally expensive in nature and accumulating interest for a longer period will make you pay out much more than you have actually borrowed.
Being Debt-Burdened for Longer
A long term personal loan will keep you under the debt for a long time frame. Being under debt for a long time may make you feel the debt-burdened. You will always need to be disciplined with your financial responsibilities for a long span of time.
Lowers Eligibility for New Loans
The loan eligibility of a person is calculated on the repayment capacity. As long as you service a loan, your loan eligibility for new loans is lessened as you have fixed obligation of your ongoing loan. The lenders do check that the total payable of every month should not be more than 50% of your net monthly income. Hence, an ongoing loan kills your opportunity for availing a new or bigger loan.
To Sum Up
An online personal loan can be of short term or long term. The tenure of the loan decides the actual amount you pay for borrowing. Deciding the right tenure for your personal loan is a crucial decision hence must be taken after considering the pros and cons of long term personal loans.