Getting a personal loan is one of the best ways to fulfill your urgent personal loan requirements. Whether you want to buy a car, pay for your child’s higher education, or need money for medical treatment, personal loans can help you manage your finances effectively.
Though most personal loans have a maximum repayment tenure of three years, many lenders offer long-term personal loans as well. The tenure of these loans can be as long as 5 years. Long-term loans require lower EMIs, so you can repay your loan without disturbing your finances.
While there are numerous benefits of long–term personal loans, there are some drawbacks as well. Let’s look at the pros and cons of long-term personal loans.
Advantages of Long-Term Personal Loans
First, let’s look at the benefits of long-term personal loans and why you should get them.
Get a Higher Loan Amount
When you apply for a long-term personal loan, you have a chance of getting an instant approval for personal loan amount. Most short-term personal loans have a limit of Rs. 5 lakhs to Rs. 25 lakhs. In the case of long-term personal loans, it could increase to Rs. 50 lakh or even more. So, if you want a higher amount, opt for a long-term personal loan.
The monthly EMIs you pay is calculated by the following formula:
EMI = Total Due Amount / Number of Months
Here, the total due amount is the total loan amount plus the interest amount.
Clearly, the higher the repayment tenure, the lower the EMI. If your total due amount is Rs. 2.5 lakh and your repayment tenure is 30 months, your monthly EMI will be around Rs. 8,300. But if your repayment tenure is 60 months, the EMI will be around Rs. 3,500. Of course, the interest amount will increase a bit, but the EMIs will be fairly more affordable.
Additional Read – 1 Lakh Personal Loan
Personal Loan Prepayment
While long-term personal loans give you more time to repay the loans, you can always prepay (pay in advance) your loans. Many lenders don’t charge a prepayment fee or charge a nominal amount. Prepaying your loan has a bunch of benefits, like:
- You can reduce your interest amount and save money.
- By clearing your loans, you can apply for other loans if needed.
Boost Credit Score
Getting a long-term loan gives you a lot of time to improve your CIBIL score, especially if you have a low score. When you pay your EMIs on time every month consistently for long, your CIBIL score improves. Also, repaying your loan early has a positive impact on your CIBIL score.
Drawbacks of Long-Term Personal Loans
Having discussed the benefits of long-term personal loans, let’s look at some of their disadvantages.
Higher Interest Rates
The interest rate is charged every month. So, the longer your duration, the more interest you have to pay on your loan, resulting in a higher total repayment amount. The interest rate compounds over the months, and the overall cost of your personal loan can end up being significantly high.
Reduced Credit Limit
Lenders are conservative in giving loans to borrowers who already have a loan on them. When you take a long-term personal loan, your credit limit reduces, and you may not be able to take other loans until you repay it. That’s something to keep in mind if you take frequent loans.
Repaying a loan can be stressful, especially if the tenure is long, the EMI is high, and you have other expenses to meet. Even though long-term loans have a lower EMI, you still need to pay it regularly every month, which can be stressful. If you are a salaried individual and have limited income, long-term personal loans can affect your peace of mind.
A long-term personal loan has both pros and cons. You can enjoy lower EMIs and flexible repayment terms. It also helps you boost your CIBIL score. On the downside, you end up paying a higher interest amount, and your credit limit also reduces.
So, should you take a long-term personal loan? The answer is that it depends on your financial situation. If you need a high loan amount and your income is low, a long-term personal loan could be the best personal loans option for you.