Personal loans are unsecured loans that come with a loan tenure as flexible as the borrower desires. Personal loans can cover a wide range of financial expenses, such as weddings, education, home renovations, debt consolidation, vacations, and medical emergencies. Despite any end-use restrictions, a low interest personal loan can be your saviour in times of trouble if you are in need.
There is often a choice of flexible personal loan tenure, which you can select depending on your monthly income, budget, and ability to repay the loan. Keep in mind that the tenure of the loan you choose can significantly impact your finances. If the loan tenure is shorter, the EMI amount will be higher. On the other hand, the longer the loan tenure, the lower the EMI amount, but the higher the interest rate.
Therefore, you must choose a personal loan tenure that you can repay easily and one that gives you the benefits of taking a loan.
Listed below are five smart tips to choose the right personal loan tenure that fulfil your needs
Be Aware of Monthly Income
To choose the right loan tenure, you should first analyze what you earn and spend monthly. If taking out a personal loan, you should calculate the amount you can save every month using monthly financial obligations on paper. Additionally, you need to pay attention to the other responsibilities you are dealing with and how long you have to fulfil them. It is possible to calculate the loan tenure and EMI amount for a personal loan by using these calculations or an online personal loan calculator.
There is no better rule to follow than the 50-30-20 rule. You should keep 50% part of your income for fixed expenses, 30% part of your income for non-essential expenses, and 20% part to pay down your debt. This rule will also help you make a proper plan for repaying your loan.
Consider Loan Amount
There is a great correlation between the loan amount you borrow and the loan tenure. It is advisable to choose short personal loan tenure for a small loan amount to pay off the debt quickly and not have to pay a lot of interest on the loan. It is recommended that you take out a longer-term loan if you borrow a large sum of money. You can strain your finances if you take on a big loan for short loan tenure, making EMI repayments difficult to handle.
Estimate Interest Rates
There is a great deal of variation in the interest rate applicable to your loan based on your credit score and repayment capacity. Among these crucial factors, along with the personal loan tenure you decide on, you will determine your eligibility for a personal loan. Generally, loans with shorter tenures are subject to lower interest rates, while loans with longer tenures are subject to higher interest rates. As a result, a shorter loan term results in a lower interest outgo, whereas a longer loan term results in higher interest outgo. Therefore, it is advisable to choose a loan with a shorter term and EMIs that you can afford to avoid paying a high loan interest rate.
Assess Future Finances
If you are due for a promotion or an increment in the future, you may want to consider that when choosing loan tenure. The income you earn will increase with time, so you can adjust your budget to accommodate a higher EMI amount. As a result, you can choose shorter personal loan tenure with a higher EMI amount to save some money on the interest payments. After you receive your hike, you will be able to save considerable amounts of money on your loan costs. You may have to make some financial adjustments until you receive your hike.
Utilize an EMI calculator
The personal loan EMI calculator is an easy-to-use tool that gives you an overview of the financials involved in the loan and can help you make crucial decisions about your personal loan, including choosing the term. A loan calculator is an intuitive tool that allows you to calculate your EMI amount and get a salient breakup of the various charges involved in your loan. It can also compare loan offers from different banks and choose the most suitable one for your needs.
It is widely acknowledged that personal loans from nationalized banks or NBFC personal loan are among the most accessible types of loans today. It is essential to observe strict financial discipline so that it doesn’t adversely affect your credit score or take a toll on your personal finances. It is crucial to compare loan products and choose personal loan tenure offered by different banks and financial institutions by analyzing the offer before signing up.