A personal loan is an unsecured financing choice, ideal for individuals seeking faster loan disbursal. The increasing demand for this credit option can be attributed to the zero-collateral requirement and no-end use restrictions. In addition, an instant personal loan helps borrowers cope with monetary urgencies without draining their lifelong savings.
However, one must be mindful of the particularities of the credit option and choose an optimum loan repayment term to make the borrowing rewarding. In addition, loan tenure has significance over the EMI pay-outs and interest outgo. Hence, borrowers should be careful while choosing it.
Know Why a Personal Loan with a Longer Repayment Term is a Better Choice
Borrowers can reap the following benefits if they opt for an instant personal loan with an extended repayment period:
● Availability of a sizeable loan amount
One of the notable benefits of a longer repayment tenure is it allows borrowers to avail of a substantial loan amount. Lenders will approve the loan amount based on the borrower's debt-to-income ratio. Extended loan tenure reduces the debt-to-income ratio and improves the repayment capacity, helping borrowers opt for a higher loan amount.
● Ensure lower EMI payments
Longer repayment tenure reduces the EMI burden and helps borrowers repay the loan amount on time. This is because the total interest component and payable principal amount are spread over a long period. A lower EMI burden allows borrowers to plan their finances well and meet their long-term financial commitments.
● Curb the chance of default
A longer repayment term leads to reduced EMI obligations, reducing the chances of defaulting on EMI payments. Moreover, on-time payments of monthly instalments help borrowers improve their CIBIL scores. Having a healthy credit score is very important to receive quick loan approvals and affordable loan terms.
● Improves credit score
Borrowers who have a substandard CIBIL score can enhance their score by choosing an extended repayment term. Longer repayment tenure will reduce the EMI burden and will help clear their loan amount on time. On-time EMI pay-outs will help borrowers improve the credit score and qualify for higher loan amounts.
● Manage other financial liabilities
As borrowers can choose to pay a lower EMI amount in a longer repayment period, they have the chance to free up cash and use it to fund other planned and unplanned expenses. They can conveniently use a part of their incomes toward other financial obligations.
Though an extended loan tenure helps borrowers in multiple ways, it increases the overall interest outgo and hence increases the cost of borrowing.
In case borrowers are concerned with higher cost of borrowing, they can opt for part-prepayment and prepay a part of their loan principal, reducing the payable loan amount to be repaid over the loan tenure. However, borrowers must be aware of the prepayment penalty that lenders levy.
There are certain scenarios under which choosing a longer loan tenure seems an ideal choice, and borrowers must know about such situations.
● Difficulty in making on-time EMI payments
Individuals facing problems in balancing the timely EMI pay-outs and managing other financial liabilities can ideally opt for a longer loan tenure.
● Clear other high-interest loans
If borrowers have the liability to clear existing higher-interest loans and credit card bills, choosing a longer repayment tenure will help them manage all their financial obligations effectively. It will prevent them from defaulting on the EMI payment.
Besides getting a flexible loan term, borrowers can reap several other benefits of a personal loan.
Benefits of Availing a Personal Loan
Personal loan bestows borrowers with the following benefits:
● Substantial loan amount
Borrowers can avail of a considerable loan principal at a competitive personal loan interest rate and manage their financial commitments. However, they must ensure a healthy credit score and stable income status.
● No-end use restriction
This is perhaps one of the most significant benefits of availing a personal loan. Borrowers can use the loan amount to fund any financial needs like managing a child's higher education, marriage expenses, business expansion, renovate home, fund medical emergencies etc.
● Minimal documentation
As an unsecured credit option, borrowers do not have to undergo a tedious documentation process. Only by submitting basic KYC papers and income proof one can get approval for the loan amount.
● Affordable interest rate
As compared to unsecured credit options, a personal loan comes with a competitive interest rate. Borrowers with a higher credit score can fetch an affordable lending rate, helping them save on the cost of borrowing and reduce the EMI burden.
● No-collateral required
Borrowers can access lump sum loan amounts without pledging their property as collateral. This benefits people who do not have any property to keep as security and those who do not want to risk their valuable possessions.
● Flexible loan tenure
Personal loan comes with a flexible loan tenure that makes it easy for borrowers to plan their repayment as per their convenience. As a personal loan comes with a host of benefits mentioned above. A shorter loan tenure also helps borrowers save on the cost of borrowing and help one go debt free faster.
● Online application process
Borrowers can easily apply for an instant personal loan from the solace of their home. Here are the steps that will help them to do so:
Step 1: Visit the lender's official website and fill out the online application form with personal and professional details.
Step 2: Select the desired loan amount and mention a suitable loan tenure.
Step 3: Upload necessary documents and submit the form.
On successful verification, lenders disburse the loan amount in the mandated account. However, before making an online application, borrowers must ensure they meet the eligibility norms.
To sum up, the easy accessibility of instant personal loan has helped borrowers sail through monetary urgencies with utmost convenience. However, to make the most of the credit option, borrowers must choose the loan tenure wisely. While shorter repayment terms make one debt free faster. On the other hand, longer loan tenure reduces the EMI burden and minimises the chance of defaulting on the EMI payouts.Moneycontrol journalists were not involved in the creation of the article