In today’s fast paced world, the dependency on credit has seen a drastic rise like never before. With a sound economic outlook and increase in spending power, more Indians are seeking credit to fulfill goals which need a financial impetus. In the retail lending segment, the popularity of Personal Loans has seen a considerable climb over the last few decades owing to the accessibility factor.
A Personal Loan is an unsecured loan easily available for a plethora of requirements at affordable rates and terms. The most challenging aspect of getting this loan is to choose the terms available such as loan tenure. Going for a longer tenure means higher interest and a shorter one implies bigger EMI. The term tenure in a loan is used to denote the time frame given by the borrower to the lender during which the loan amount (including interest charges) should be paid in monthly installments (EMI). By the end of the tenure, the entire principal amount along with arrears (if any) should be realized.
This write up is aimed to help you in choosing the most optimal term for your Personal Loan since selecting an inappropriate one can be lead to monetary losses and prolonged loan repayment.
Here are a few points in this regard. At the end of this article, you should be well positioned to easily decide the tenure for your loan.
Understand your monthly budget
One of the most critical factors which aids your effort to choose an appropriate tenure. Jot down your monthly commitments and vet it against the monthly income to ascertain the residual income. Based on what is left over, you can appropriately choose a tenure that works well within your budget and does not burden you with additional monetary pressure every month.
Assess your future financial prospects
If you’re salaried and due for a hike in the near future, there is more room in terms of disposable income to accommodate a higher EMI every month. This way, you’re not only paying off the loan early, but also reducing the overall interest charges paid. This scrutiny may add that extra burden until the hike, but will work wonders in the near future.
Consider existing liabilities
If you have other monetary commitments, taking them into consideration also helps in choosing an appropriate tenure. Other loans, credit card payments, house rent, tuition fees are the most common commitments to be taken into consideration. Be sure to choose a term which balances all the obligations without much hassles. To aid this task, use spreadsheets and appropriate formulae to arrive at a definite picture.
Calculate the interest charges involved
Another important point which requires your attention is to understand the charges involved in the loan. Use combination of various tenure options with the proposed loan amount to calculate the interest. Naturally, a loan with a longer term means higher charges. You don’t want to end up taking a loan which you keep paying for many years.
An easy-to-access tool which gives you an all-round view of the financials involved in the loan, helping you in making critical decisions with regard to the Personal Loan which includes choosing the term. Bankbazaar.com hosts an intuitive tool to help you calculate the EMI amount and to get a salient break up of various charges involved in the loan. This tool can also be used to compare loan offers from various banks to choose the one which meets your requirements.
A Personal Loan is one of the most accessible loan instruments in the market today. Strict financial discipline should be followed so that it does not affect your creditworthiness or take a toll on your personal finance. Before signing up for a loan, it's imperative to compare loan products offered from various banks and financial institutions by studying the offer. Use the “Personal Loan” section of this website to compare loans from various lenders.