The personal loan segment is flourishing and has escalated by 12.1% in the credit outstanding from 2020 to 2021. The surge is due to its less stringent, flexible repayment provisions. The accessibility of the extended repayment tenor proves to be beneficial as it effectively lowers the EMI burden.
Not planning the loan tenor will have an adverse effect on your financial health and has far-reaching consequences, causing hindrance to your financial accessibility for an extended period. Hence, it would help if individuals had a well-rounded idea regarding certain parameters before availing of a personal loan for maximum tenor.
5 key things you should know before availing of a personal loan maximum tenor
Borrowers should factor in certain things while availing of the right personal loan tenor to make the borrowing feasible and cost-effective:
- Selection of loan principal
The loan amount you are likely to borrow has a significant impact on the loan tenor. If you need a high quantum loan amount, consider availing longer loan tenor, as it will not strain your budget. Availing personal loan maximum tenor will help you repay the credit advance conveniently. However, you will also have to bear in mind that extended loan tenor results in higher interest outgo. To decide on the right loan tenor with respect to the loan amount, you can use a personal loan EMI calculator.
- Consider existing financial liabilities
Suppose you are already liable for current monetary commitments like credit card payments, house rent, educational expenses etc. In that case, opting for a shorter loan tenor will take a toll on your financial health. In such cases opting for an extended tenor will help you balance all such obligations without hassles. Hence, you must choose a long term that goes in accordance with your financial accountability.
- Compute personal loan interest rate
Personal loan interest rate is a significant determinant of the affordability of the credit option, and it depends on your CIBIL score, monthly income, repayment capacity, age etc. You should aim to avail of a shorter tenor as it minimises the interest rate and results in overall lower interest outgo. However, if you have a poor CIBIL score, you can consequently opt for an extended loan tenor to avoid loan application rejection. Furthermore, opting for a longer repayment tenor helps enhance one’s credit score. In this regard, you should know how to avail of a better interest rate for your personal loan and make the borrowing affordable.
- Assess your monthly income
Another effective way to opt for an ideal personal loan tenor is to factor in your monthly income and expenses. It is essential to check whether you have any redundant spending in your monthly budget. List down your monthly expenditures and work on how to eliminate extra expenses and save more before applying for a personal loan. In this regard, considering the repayment of the existing debt and knowing how to save on EMIs by consolidating your debt is important to avoid future monetary pressure.
- Count on future financial prospects
Along with factoring in monthly expenses, you should also take into account future financial scopes like increments, bonuses or promotions as this financial inflow influences loan tenor. You will have enough funds to make higher EMI payments when your income increases. Hence, opting for a shorter tenor will be feasible. However, if you anticipate a colossal expense in the future, you can considerably opt for a personal loan maximum tenor.
Let’s say you are availing of a credit option from the reputed financial institution Bajaj Finserv, and you can repay the loan amount readily after a promotion. However, you will have to obtain Bajaj Finserv Loan Statements to make prepayments or foreclose your existing loan account.
Furthermore, one can utilize the loan EMI calculator to decide on the right tenor, which will help you budget and calculate your EMI payments for the loan option.
Know how a Personal loan EMI calculator works
The personal loan EMI calculator works based on the mathematical formula-
P x R x (1+R)^N / [(1+R)^N-1], where P is the principal amount, R determines the interest rate, and N represents the loan tenor.
The formula mentioned above computes EMI pay-outs for a borrowed amount that remains fixed throughout the loan tenor. Hence, it is important to know how to plan personal loan EMI repayment better.
Besides offering flexible loan terms, borrowers are also bestowed with exclusive pre-approved offers. Several leading financial institutions extend this benefit on a host of financial products like personal loans, business loans, credit cards etc. These offers simplify loan applications and make borrowing cost-effective. One can check the pre-approved offers by entering their name and contact number.
To sum up, availing of a personal loan helps borrowers manage and compensate for the colossal financial gap. However, borrowers should be wise in choosing a personal loan maximum tenor to manage loan expenses and curb financial burden in the long run.
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