10 Smart Tips to Choose the Right Personal Loan Tenure

If you plan to take a personal loan, one of the key factors to consider is loan tenure. Choosing the right loan tenure that fits your financial situation and supports your future goals is important. In India, most lenders offer instant personal loan for 1-5 years with some extending it to 7 years. A long loan tenure results in lower EMI amount while a shorter loan tenure results in high EMI amount.  Besides this, there are a number of factors that one should consider when deciding on loan tenure. This blog guides you on all the factors to consider when deciding on loan tenure.   

What is Personal Loan Tenure?  

Personal loan tenure means the agreed-upon duration between a lender and a borrower for loan repayment. Loan tenure impacts the interest rate and EMI amount. Lenders provide flexible repayment structures to ease borrower’s repayment, keeping their current income and financial situation in mind. Most lenders offer personal loan tenure between 1 – 5 years, with some extending for 7 years. Longer loan duration is beneficial for borrowers with limited monthly income, helping them manage their finances. Many lenders offer loans for duration as short as 3 months. This is ideal for borrowers with a high monthly income as it allows them to clear off their loan earlier.  

Common Mistakes to Avoid When Choosing Loan Tenure  

When choosing a loan tenure, it is important to consider several factors that affect loan tenure. Here are some common mistakes that borrowers make: 

Focusing only on EMI amount: Many times, borrowers only focus on affordable EMI amount. However, it is equally important to focus on interest rates that one would end up paying for the entire loan tenure.  

Opting for Longest Tenure: It might seem like an easier option to opt for the longer tenure, but it also increases the total interest paid overtime. 

Opting for a High EMI Amount: While short tenure will allow you to clear off your loan quickly, you will also need to pay a higher EMI amount. This could potentially impact on your other expenses and make it difficult to manage your finances. 

Ignoring Future Financial Situation: Not taking into account future financial conditions. Income sources and future may change and might impact EMI payment.

Not Considering Monthly Budget: You need to take into consideration your monthly expenses and any other EMIs that you need to pay. If you ignore these factors, it may lead to a high EMI amount making it difficult to manage other expenses. 

Thus, before you select a loan tenure, consider the mentioned factors and decide on the right loan tenure that fits your financial situation. 

Also Read: How is the repayment tenure decided? 

Benefits of Choosing the Right Loan Tenure  

Selecting the right loan tenure that fits your financial situation will help you save money in the long run. We have mentioned few key benefits of choosing the right loan tenure: 

Efficient Financial Planning: You can efficiently allocate funds to EMI, daily expenses and other expenditures, for the loan tenure period. This can help you plan your monthly budget without any financial burden. 

Balance Existing Liabilities: When you select the right loan tenure keeping in mind your existing liabilities, you can plan your finances better.  

Compare Loan Options: Once you decide on the right loan tenure, you can compare various loan options available. With the help of an online Personal loan EMI calculator available, you can understand interest rate and EMI amount for each loan option.  

10 Smart Tips to Choose the Right Personal Loan Tenure  

If you are planning to take a loan, consider these tips that will help you choose the right personal loan tenure: 

1. Assess Your Financial Situation

Before you decide on your loan tenure, assess your financial situation. Factor in your monthly income, other sources of income, existing liabilities, expenses and future goals. This will help you determine the loan tenure and efficiently manage your finances. 

2. Evaluate Your Repayment Capacity

By considering your current financial situation, you can determine your repayment structure. This will allow you to set an EMI amount that you can easily pay each month without impacting other essential expenses. 

3. Consider Your Loan Amount

Loan tenure impacts the loan amount and the total interest rate; you’ll end up paying. If you choose a short tenure, you will end up paying a high EMI amount but will clear off the loan earlier. If you choose a long tenure, you will pay a lower EMI amount but will have to keep in mind the interest rate. Opting for a loan amount and tenure that fits your current financial situation, and future goals will help you choose the right loan tenure that best suits you. 

4. Compare Interest Rates for Different Tenures

By utilizing EMI calculators online, you can easily compare interest rates with different tenures. These EMI calculators provide you with the option to input the different loan amounts, tenure and interest rates for easy comparison. 

5. Check Prepayment and Foreclosure Terms

Check if the lender is providing a pre-payment or foreclosure option, without any penalties. This option allows the borrower to reduce personal loan tenure. If you are expecting to receive any additional income or funds in the future, you can clear off your loan earlier.  

6. Understand EMI Implications

The loan tenure has a direct impact on the EMI amount. If you choose a longer tenure, you have to pay lower EMI. However, do consider the total interest rate you will have to pay. If you choose a shorter loan tenure, you will end up paying a high EMI amount each month. Choose a tenure and EMI, that you can easily repay without any financial burden. 

7. Look at Your Long-Term Financial Goals

When you choose a loan tenure, consider your future plans and financial goals. If you anticipate a job change, higher education, starting a family or relocating to a new location, evaluate the financial implications for these situations. Choosing a loan as per these future goals will help you budget and manage your finances effectively. 

8. Seek Expert Advice

If you are unsure about which tenure is a best fit for you, seek professional help. Speak to a financial advisor or a loan expert, to understand the benefits & limitations of different loan tenures. They can provide helpful insights into your financial situation and guide you to make an informed decision. 

9. Use Online Loan Tenure Calculators

Online EMI calculators are user-friendly and easily available online for free. You can compare different loan tenures with different loan amounts and interest rates. It also helps you see the exact breakdown of interest payable, EMI amount and total amount for any tenure chosen. The loan tenure calculator will help you figure out your repayment strategy and smartly manage your finances. 

10. Review Lender Policies and Terms

When accepting any loan, carefully read all the loan terms and conditions. Review any extra charges like processing fees, late fees or penalties that may be charged by the lender. Additionally, review their loan disbursal process, documents required, eligibility and cancellation policies. 

Also Read: Loan Repayment Schedule | Loan Amortization Calculator

Conclusion  

Opting for the right loan tenure is important when you take a loan. Loan tenure impacts the EMI amount and the total personal loan interest rate you end up paying. Check if the lender is offering any pre-payment or foreclosure option. Evaluate your current financial situation along with your future goals, to manage your finances efficiently. Ensure you choose a loan option that is affordable for you without impacting your other essential expenses.