Personal loans: Longer repayment tenure or a higher EMI

India's First Financial HelpLine

When a person is looking for the best deal on a personal loan, person is always confused of choosing either longer repayment tenure or a higher EMI. If a person chooses longer repayment tenure then, it helps to make the EMIs comfortable. If a person choose shorter period that has a higher EMI, it helps to save the interest rate paid out. There are various banks and financial institutions that provide personal loan at the best rates.

Several lenders offer longer repayment period up to 7 years for a personal loan; because it is difficult for customers to bear higher EMIs on large loan amount. Person should always take the right decision about lenders and their interest rates, before applying for a personal loan.

Following are some necessary facts that every borrower must keep in mind:

1. Tenure period must compare against the amount of loan that determines the EMI with the interest rates.

2. The rate of interest for shorter tenure loans are less as compare to the loans with the longer repayment period.

3. Longer repayment period means higher interest rates on the loan amount.

The Significance of the Repayment Tenure

Repayment tenure agreed by both parties at the time of getting a personal loan. It is a vital factor that will determine the actual loan amount that is paying off by the end of the repayment. Interest rates depend upon the loan amount and tenure period. Different banks have different interest rates.

Almost all lenders charge lower interest rates for shorter duration of loans. Repayment tenure will decide the total amount to be paid back. It also determines the EMI which is relevant.

Illustration:

If a person gets a personal loan of 1 lakh with tenure of 3 years having an interest rate of 16%, then the EMI will be Rs 3515 and the interest rate paid at the end will be Rs 26,565. If a person increases the tenure period of 7 years, then the EMI will be Rs 1986 and the interest rate paid at the end will be Rs 66,840. If a person increases the tenure period interest rate automatically increases by the bank.

Person having shorter tenure period must keep in mind that they have to bear the higher EMI. It is beneficial for the person to take longer repayment period because a person can slowly repay the loan. In a shorter period, person has to give long EMI. Shorter tenure period only has a one advantage that it has less interest rate as compare to longer repayment period.