The term personal loan refers to an unsecured loan that can be repaid over a flexible period. A personal loan can cover many financial expenses, such as a home renovation, wedding, vacation, emergency medical care, debt consolidation, or education. Even though personal loans have end-use restrictions, they can come to your rescue when you are in need. You may be able to get personal loans that come with flexible repayment terms based on your monthly salary, your budget, and your ability to repay. If you are thinking about choosing personal loan tenure and an EMI amount that is convenient for you, then you need to take some time to think about it. You must remember that your loan term can significantly impact your financial situation.
There is no doubt that personal loans are one of the easiest loan instruments available on the market today. Maintaining a strict financial regime is essential to maintaining the good financial discipline to avoid affecting your creditworthiness. The EMI will be higher in shorter personal loan tenure, but the interest outgo will be lower. The EMI will be lower in longer personal loan tenure, but the interest outgo will be higher. Therefore, you must choose a personal loan repayment period based on whether you can repay it easily and whether you can benefit from it as intended.
Listed below are some of the tips to choose your personal loan tenure wisely
Analyze your monthly salary
It would be best to analyze your monthly salary and expenses before choosing your loan tenure. Before taking out, a personal loan put your monthly financial obligations on paper and calculates what you can save each month. Additionally, please pay attention to other liabilities you must fulfill and how long you still have to fulfill them. Based on your monthly salary, you can calculate loan tenure and the monthly EMI you will be paying on your loan. It is a good to calculate your repayment schedule. You should use 50% of your income to cover fixed and variable expenses, 30% for non-essential expenses, and 20% to pay off debts and save. You can use this rule if you plan to repay your loans properly.
Consider the amount of your loan
In many cases, the amount of your loan has a significant impact on the term of your loan. If you are taking out a small loan, you should aim for shorter personal loan tenure since you can pay it off quickly if you adjust your finances for a few months and will not pay out much in interest. However, if you borrow a large amount, choosing longer personal loan tenure is advisable. Taking out a big loan for a short tenure may strain your finances, and you might have difficulty handling the EMI repayment.
Check your rate of interest
Your credit score and ability to repay the loan will determine the interest rate applicable to your loan. You can determine whether you qualify for a personal loan based on these crucial factors and the loan term you choose. Longer personal loan tenure tends to attract higher personal loan interest rates in India, while shorter personal loan tenure usually attracts a lower interest rate. In other words, choose a loan with the shortest tenure and the smallest EMIs you can afford to avoid paying a high-interest rate.
Assess your future finances
Remember any future promotions or increments you will receive when selecting loan tenure. You will be able to increase the EMI amount you set in your budget as your income increases. If you choose shorter loan tenure with a higher EMI amount, you can save money on the interest outgo. Although you may need to adjust your finances until you receive your raise, once you receive it, you will be able to save a lot on your loan.
Use an EMI calculator for personal loans
Choose the personal loan tenure most suitable for you by using an EMI calculator and finding various combinations of loan tenure and EMI amount. This tool calculates your EMI amount based on your selected loan tenure, your borrowed amount, and the applicable personal loan interest rates in India. To decide which tenure is most appropriate for your needs and requirements, you first need to know how much EMI you will need to pay for a particular loan amount and for how long. Using an EMI calculator for personal loans will also allow you to calculate your total interest expense and the amount you must pay by the end of the loan term.