A personal loan is a great way to arrange funds for your variety of purposes. Whether it is for organizing a wedding ceremony or for the purchase of a new property, a personal loan can assist you in the hour of your financial need. As it is known, after obtaining a personal loan, one is required to make EMI payments. EMIs can be checked through a personal loan EMI calculator. You can also check your monthly EMI now easily within a few minutes. However, apart from EMIs, the other factor important to be predetermined in a personal loan is the loan tenure.
Loan tenure is the period for which the loan is sanctioned. Deciding what an appropriate loan tenure should be on a particular loan can be tricky.
A personal loan and its payment method depend not just on EMIs and interest rates but also the loan tenure.
Therefore, it is important to know about the factors affecting personal loan tenure.
Defining Shorter and Longer Personal Loan Tenure
Before understanding the factors affecting personal loan tenure, it is important to understand the two types of loan tenure.
Shorter Personal Loan Tenure
In a shorter personal loan tenure, the EMI payments are increased while the interest rates are reduced. What this implies is that as the period is shorter, the interest amount accrued reduces. But a personal loan EMI calculator will tell you that your EMI payments will increase. This increases the risk of your being a defaulter. The credit score is generally more at risk in the shorter personal loan tenure.
Longer Personal Loan Tenure
A personal loan EMI calculator, in the case of longer personal loan tenure, will show that your EMI payments will decrease. In other words, as the period of the loan is increased, the EMI amount to be paid automatically decreases. But the catch is that in the longer run, the interest amount is also increased. However, the chances of being a defaulter are significantly reduced in the long run as the EMI amount is considerably reduced. So, if you want to take time to ease off your debts, a longer personal loan tenure option would be better suited to you.
Loan Tenure and EMI
The simple mathematics of loan tenure says that upon increasing the duration of installments payment the EMI amount will be reduced. Longer tenure implies smaller EMI payments and a short tenure would imply large EMI payment. It is a very subjective thing, for it varies from person to person and their payment capacity or convenience. A personal loan EMI calculator will help determine the interested party to compute the EMIs he will have to pay on different tenure schemes.
Debt Burden Ratio
A debt burden ratio is a mathematical computation done by the banks while deciding the loan amount to be issued to a borrower. DBR is calculated on the ratio of total debt and the total asset of the borrower. DBR allows the banks to charge a specific percentage from your income. This ensures both the bank and the borrower from the risk of missing out on interest payment deadline.
With a longer tenure of the loan payment, DBR would reduce and higher loan amounts can be availed easily.
Interest Rates
While the interest rates on a loan amount are not at all shaped by the loan tenure, the way you pay your interests will directly affect your loan tenure. As long as you are able to pay to the bank the stipulated interests, your loan tenure can be easily stretched. Further, you will be required to pay the interest at the same interest rate on whatever the remaining loan amount would be.
Different Bank Options
Personal loan tenure is also dependent on the banks you issue the loan from. Banks would like to prefer shorter loan tenure for it not only increases the DBR but also the EMI amount. This can be clearly evaluated in a personal loan EMI calculator. Depending on your financial status, the bank will decide what personal loan tenure you are eligible for.
Means of Income
A good financial status can be directly reflected in the loan tenure you get. Your ability to pay off the debts will give you a longer loan tenure while in the opposite case it will be shorter.
Age Factor
Age too plays a decisive role in determining personal loan tenure. If you are in your late 20s,30s or 40s you may be given a longer personal loan tenure. If you are in your seventies, the loan tenure period may be cut short for a while or so.
Personal loan tenure, as evident, can shape your loan payment in so many ways. You should always keep in mind certain factors like opting for EMI option best suited to you, the loan amount you can afford to repay, the convenience of interest rates, and a good comparison of different banks so as to land yourself the best offer. The benefits to be reaped from personal loans depend on the optimum understanding of every factor affecting your repayment.
