According to data published by the RBI, the personal loan segment has witnessed a sharp rise of 12.1%, a surge from Rs.26 lakh crore in FY2020 to Rs.29.18 lakh crore in FY21. Furthermore, as per the CARE rating report, the personal loan category skyrocketed by 11.2% and escalated by 220 basis points.
The increasing demand for this collateral-free credit option can be accredited to the standout benefits it offers to the consumers. Borrowers can easily access a substantial loan amount at less stringent terms and a pliable repayment loan tenor. Furthermore, opting for a personal loan with maximum tenor reduces the EMI burden, helping one manage financial obligations.
Know how to choose the maximum tenor for personal loans
Before settling for a suitable personal loan repayment tenor, borrowers should factor in specific parameters:
- Gauge personal loan interest rate: The interest rate is a significant parameter that decides the loan tenor. Higher interest results in higher EMI pay-outs, resulting in borrowers availing of a longer loan tenor. Choosing a long tenor also helps improve an individual’s credit score. Similarly, if borrowers are offered a lower interest rate, they can manage to repay the loan amount within a shorter loan tenor. Borrowers can try several loan tenor combinations with the sanctioned amount and apply for a suitable repayment tenor through instant loan apps offered by financial institutions.
- Understand monthly income: The most effective way of choosing a personal loan tenor is to factor in the borrower’s monthly income status and expenses. Before availing of the credit option, borrowers must list their monthly liabilities like fixed debt obligations and choose a loan tenor accordingly. Analysing savings and expenditure helps in taking an informed decision. If borrowers’ monthly expenses consume 70 to 80% of their monthly income, they can use a personal loan with maximum tenor. However, borrowers can opt for a shorter loan tenor to save on interest payments.
- Loan principal: The loan amount which borrowers like to derive from the lender using a money loan app dictates the loan tenor. For smaller loan amounts, borrowers can choose a shorter loan tenor. On the other hand, borrowers need to spread out loan tenor for a high quantum loan amount. It will help dodge the financial burden and avoid missing out on EMI payments, which will otherwise lead a borrower to the defaulter list and lower the credit score.
- Contemplate future financial prospects: While computing personal loan EMIs, borrowers need to reflect on their future financial status. In case borrowers are bestowed with any salary hike, increments or bonuses, it will become convenient to manage higher EMIs. Hence borrowers can consider a shorter tenor and save on interest rate. As per financial prospects, applicants should know how to calculate personal loan EMIs.
Furthermore, applicants should consider their existing financial liabilities; having to clear current expenses will prompt borrowers to extend their loan tenor, which will help manage ongoing expenditures with ease. In this regard, borrowers should know how to clear overdue payments with a personal loan.
Importance of choosing a suitable personal loan tenor
Borrowers should choose a personal loan tenor carefully as it significantly impacts borrowers’ financial status in the long run. Following are some reasons why opting for the right loan tenor is essential:
- Opting for a suitable loan helps one repay loan amounts conveniently, thereby enhancing credit score and helping borrowers derive loan amounts at an affordable interest rate.
- A suitable loan tenor allows borrowers to plan their finances effectively and manage other financial liabilities.
Hence, a flexible loan tenor is a significant feature that makes a personal loan a viable option. Apart from offering a pliable loan tenor, there are other important reasons why personal loans are emerging as the preferred means of financing.
Along with making the most out of the flexible loan tenor, borrowers can also check the exclusive pre-approved offer extended by leading financial institutions. These offers are available on financial products like personal loans, business loans, credit cards etc. These offers simplify and accelerate the loan application process. Intending borrowers can check their pre-approved offers by entering their names and contact details.
To sum up, a personal loan is a versatile credit option catering to the diverse financial need of a borrower. However, choosing a suitable loan tenor, whether a personal loan with maximum tenor or a shorter tenor, rests on borrowers’ repayment capability and other financial obligations.
Read Also: Why Should You Choose Personal Loans for a Shorter Tenor?