Personal loans are without a doubt the best choice for people who wish to cover any expenses without any limitations. But what most people do not know is that the length of the repayment period affects both the total amount of the personal loan and the EMIs that are calculated from that amount. Because of this, it is very important to understand the different ways that personal loans can be paid back.
What Are Personal Loans?
Personal loans are a type of unsecured loan that banks and NBFCs give out based on the borrower’s job, employment history, income level, and credit score. In some places, a personal loan is also known as a consumer loan.
You can use the personal loan money to pay for any expenses that come up suddenly. People get personal loans when they do not have enough funds to pay for an emergency or when they do not want to use all of their savings to pay for their immediate responsibilities.
Features of a Personal Loan
- Digital ProcessSince the whole process is done online, there is no need for paperwork or direct contact between the people involved. Digitalisation has made the personal loan application process quick and easy.
- Flexible TenureYou can decide how long it will take for you to pay back the loan. The loan tenure can be anywhere between 6 and 60 months.
- Multi-PurposeA personal loan can be used to pay for a wide range of things, such as a wedding, a vacation, new furniture for your home, unexpected medical bills, and many more.
- No CollateralPersonal loans are unsecured loans, which means that you do not have to put up any property or asset to get approval.
- Minimum DocumentationMost of the time, you only need a few documents to get a personal loan. You will need things like ID proof, address proof, and bank statements.
- Instant DisbursalIf you are approved for a personal loan, the money will be credited to your bank account within the next 24 to 48 hours.
What is a Typical Personal Loan Amount?
Usually, you can get a personal loan from a bank or an NBFC for any amount between Rs 10,000 and Rs 40 lacs. But the amount depends mostly on your financial history and your ability to repay the sum.
If you choose a longer loan period, you will have more time to pay it back. This means that your EMIs and other monthly financial obligations can be balanced well. So, if you want a big loan amount, which would come with a higher interest rate, then a longer loan period can help you get lower EMIs.
What is a Repayment Tenure?
The term ‘loan repayment tenure‘ means the total amount of time that passes while you make the EMI payments on your loan to pay off the whole loan amount.
Personal Loan Maximum Tenure
Each lender sets a different limit on how long you can take to repay a personal loan. This is done to make sure that borrowers can choose a repayment tenure that works best for their finances. Even though the average maximum term for a personal loan is 42 months, you are given a chance to pay back the loan with more manageable EMIs.
If you have a low monthly income, choose a longer personal loan tenure. This way, you will not struggle while paying off the loan.
Personal Loan Minimum Tenure
The minimum loan tenure also varies from one lender to another. Some experienced and well-known lenders offer the shortest loan terms of three months, while other lenders offer the shortest loan term of ten to twelve months.
Most personal loans with shorter terms have higher interest rates, which means that the EMIs are usually bigger. So, people with high salaries can pick a shorter tenure of three months.
What are the Factors that Influence Personal Loan Tenure?
- Interest RatesPersonal loan interest rates directly influence the tenure of your personal loan. If your loan’s interest rate is higher than average, you should choose a longer loan term so that you can take your time to pay it back.
- Monthly IncomeSince you will have to pay your EMIs from your monthly income, it is in your best interest to choose your tenure carefully. If your income is low, choose a loan term that lasts longer. If your monthly income is high, choose a loan term that ends quickly. This will make it easier for you to pay off the loan based on your capacity.
- Bank OptionsWhen it comes to the debt-burden ratio (DBR), every financer has their own rules. There are times when a bank will not approve a shorter personal loan term because it will cause your EMIs to go up. This, in turn, will cause the DBR to go up. If the DBR does not meet the bank’s standards, you will not get a loan from that bank.
- Existing LiabilitiesYour current financial responsibilities affect your monthly income, which you will need to make personal loan payments. If you have a lot of debt from the past that you need to pay off, you should choose the longest loan term possible.
Personal loans are the best option when you are short on time and need cash right away. Before choosing a repayment tenure, you should carefully consider all its pros and cons. When you choose the wrong repayment tenure, it can be hard on your finances and prove to be a burden for you.
If you do not know where to start or have questions about personal loans, you should consult Piramal Finance and find loan options that suit your needs.