Find The Right Personal Loan Tenor That Works For You

A personal loan can bail a person out of the toughest of situations in the easiest and quickest of ways. It can help one overcome anything from a grave medical emergency to even an urgent home repair for which one may not necessarily have money available immediately.

A personal loan is typically given by banks and non-banking finance companies without collateral and can be applied for and availed online, without even having to visit the lender’s branch. Not only is the money typically disbursed in a matter of hours or maybe, just a day, the borrower can even repay the loan online in easy instalments. 

But how does one choose the right tenor or time period to repay the personal loan?

The repayment tenor on the personal loan should ideally be chosen wisely by the borrower as it impacts the equated monthly instalment, or EMI, that needs to be paid and the total interest payable on the loan. 

A longer tenor would mean lower EMIs while a shorter time period would mean that the borrower would need to make a higher monthly payment. Having said that, a longer tenor would also mean that the borrower will pay a higher amount as interest over the time period of the loan.

Choosing the most appropriate tenor, therefore, helps as it could help a borrower save some money in the long run. 

Here are some key factors that a borrower should keep in mind when choosing a tenor for their personal loan:

Monthly Budget:

This should really be at the top of a borrower’s mind while choosing a tenor for the personal loan. A borrower should make a note of their monthly incomes and expenses and see how much money they are left with. On the basis of the residual income, they should calculate the amount of money they can dispense with each month towards paying the EMI. This will make sure the borrower is not unduly stressed or burdened while repaying the loan.

Interest Charges:

A borrower should be mindful of the interest charges they may need to pay over the tenor of the loan and so should choose the time period wisely. The tenor should be such that the interest outgo is reasonable and the borrower does not end up paying an exorbitantly huge amount for the loan in interest charges. 

Current Liabilities:

The personal loan may not be the only liability that the borrower is taking on. There may be other debt that they need to pay or have myriad other monetary commitments like school or college fees, medical bills, household expenses etc that cannot be wished away. The loan tenor should be such that it helps balance one’s payments in a way that one is not financially stressed at the end of the month.  

Financial Health And Future Prospects:

While choosing a loan tenor, a borrower should be acutely aware of the current state of their finances and of how their financial prospects look in the near future. If a borrower is salaried and expects a pay raise, they may be able to afford a bigger EMI outgo more easily and so may go in for a loan with a shorter tenor as compared to someone who does not see a pay increase on the anvil. For someone who can afford to, paying off a loan early will bring down their total cost of borrowing. 

Conclusion

Choosing a loan tenor can be a critical decision while availing a personal loan. Borrowers can use an EMI calculator like the one provided by IIFL Finance to calculate the money they will be required to pay every month for specific loan tenors. This easily accessible tool can help one decide quickly on how long a loan tenor they should ideally opt for.

Apart from EMI calculators, good lenders like IIFL Finance also offer flexible repayment options which allow you to not only choose the tenor for which you borrow money but also customize the payments to match your income flow or cash flows, depending on the amount of money you can easily spare each month.