In today’s fast-paced world, quite a lot of people rely on a personal loan to meet their financial needs. Reason being a personal loan is an unsecured loan available for almost everyone at a competitive rate of interest. The most challenging aspect while signing up for this loan is choosing the right loan term. If you choose the longer loan term, you may end up paying higher interest, alternatively, if you choose the shorter tenure, you’ll have to pay higher loan EMIs each month.
A loan term is the total time period preset by the borrower during which the entire loan amount has to be paid in monthly installments. The interest applied on the loan amount shall also be paid before the end of loan term. To be precise, loan tenure is a stipulated time period set by the borrower within which the entire principal amount along with the interest should be paid in full.
If you are one planning to apply for a personal loan anytime soon, below is the list of things that you must consider while choosing a personal loan term:-
- Understand your monthly budget and expenses: It is one of the most obvious things that you must ponder on while choosing the right loan term. Take a paper and a pen and make a list of all the monthly expenses that you are committed to. Based on whatever money is left, you can choose the tenure of the personal loan. Remember, a personal loan may help you in dire need of money but from the time it is availed till the amount is repaid in full; it acts as the biggest liability. Also, make sure the loan term you choose does not weigh you down with additional monetary pressure.
- A careful watch at future financial prospects: This is especially important for salaried individuals who expect a salary hike in the near future. A higher EMI in that case would not be a burden for them. Similarly, self-employed can also consider their future income and financial prospects before choosing the loan term. This scrutiny may add extra burden till the hike, but after that, it works wonders.
- A look at your existing liabilities: Apart from considering a salary hike, you should also think about other monetary commitments as well such as kid’s tuition fee, house rent, existing loans and credit card payouts, etc. Always choose a loan term that helps you balance all your existing liabilities plus the personal loan EMI without much hassle. To make this task simple, you can use spreadsheets, and appropriate formula to arrive at a definite picture.
- Financial stability: Choosing a loan term as per your financial stability is also important. Plus, banks will also not be hesitant in giving you a loan if you are financially stable and have bright future prospects of earning. Moreover, repaying a loan will also be easier if you are financially stable.
- Income: A salary highlights the paying capacity of a borrower. The more you earn, the bigger the amount of loan you can apply for. Considering your income while choosing a loan term is also important. Even banks ask for the salary slip of the borrower based on which they decide whether or not to provide the loan to the borrower.
- Calculate the interest rate: Since the interest rates applicable on a personal loan differ widely across banks and Non-Banking Financial Institutions (NBFCs), it is wise to know about the interest rates offered by every bank before making a decision. Calculate the interest rates applicable on loans by using a combination of tenures and the loan amount proposed. Generally, a loan with longer term means higher interest and nobody wants to take up a loan which they keep on paying for many years.
Personal Loan EMI Calculator
To calculate the interest applied on the personal loan, you can use a personal loan EMI calculator. It is an easy online tool that allows you to get a detailed view of all the finance involved in the loan so that you can make a wise decision in choosing the right loan term. You can find a personal loan EMI calculator on the bank’s website. By using this tool, you can also calculate the monthly loan EMIs and the interest rate that you would be paying to the bank/NBFC within a stipulated period of time to settle the loan. With personal loan EMI calculator, you can make as many searches as you want by using a different combination of a loan amount, and tenure to reach out the best loan scheme that matches your requirements and budget.
These are quite a few significant factors one should keep in mind while choosing a loan term with regards to a personal loan. Although your credit score is also a crucial thing in getting a loan, the above-mentioned factors should not be overlooked in finding the best loan scheme. Also remember that banks provide personal loans at a higher interest rate (18% to 25%), hence it should only be your last point to consider. A personal loan is of two types, a secured and an unsecured one, offered by banks and several non-banking financial institutions.
You can use the loan amount for anything including house renovation, a purchase of bike, four-wheeler, to fund your honeymoon trip and a lot more. But getting a loan for luxury and comfort should be avoided as far as possible. It should be better put to use in emergency situations like for consolidating your credit card or existing loan debts that are attracting higher interest rates, for medical and hospitalization expenses and perhaps for the wedding or education of a son/daughter. A personal loan is a boon for every individual who is facing a serious financial crisis. But to get the loan in the simplest manner possible, one should maintain a good credit score (750 & above), should have a good source of income, and should meet all the eligibility criteria set by the bank.