Personal loan

Why a personal loan with a longer repayment term might be a better choice

A personal loan is a one-stop solution for all your urgent financial needs.

New Delhi:

A personal loan is a great choice for many reasons.

Whether you want to take your family on vacation or manage a cash crunch, a personal loan is all you need to meet all kinds of financial needs. The best part? You can get a personal loan – no questions asked – through a quick online application and choose a convenient loan term for easy repayments.

However, while a personal loan gives you unparalleled financial freedom, the choice of loan term has a significant impact on your finances. Generally, a shorter loan term can get you out of debt faster. But there are times when a longer repayment term makes a lot more sense financially.

Here’s why a personal loan with a longer term might be a better choice for you.

Reduced EMI payments

With a longer repayment term on your personal loan, you have the opportunity to reduce EMIs. The total interest and principal payment are spread over a long period. Lower EMIs allow you to manage your monthly expenses and achieve your long-term financial goals without straining your finances.

Freedom to apply for a larger loan amount

Before applying for a personal loan, the key factor to consider is the loan amount you wish to borrow. It depends on your financial needs and financial capacity. A longer repayment term allows you to take out a higher loan amount based on your debt to income ratio.

Most financial institutions prefer a debt to equity ratio of 35-40% when sanctioning a personal loan. This means that your monthly obligations, existing EMIs, and current EMIs should be 35-40% of your monthly income. Opting for a longer loan term can lower your DTI ratio as it improves your ability to repay. Thus, allowing you to borrow more funds.

Less risk of defects

Lower EMIs significantly reduce your financial stress of managing loan repayment. Higher disposable income reduces the risk of EMI default. Timely EMI payments also have a positive effect on your credit score.

It helps establish a higher credit rating

Your credit score is an essential factor in your borrowing process. But building a high credit rating also takes a lot of time and stability. With a long-term personal loan, you have a great opportunity to achieve this by paying your EMIs on time.

Free up money for other expenses

Since your EMI payments are lower due to a longer repayment term, you can free up money for other planned and unplanned expenses. You can then use this additional amount for your other obligations. For example, if you have a credit card, a long-term loan with lower EMIs can help you use that extra amount to pay it off. Moreover, you can also use this amount to invest in securities to get higher returns for your long-term financial goals.

Possibility to prepay the loan

A longer loan term might make you fear the higher cost of the loan over time. However, if you have enough cash, you can easily prepay part of your loan. A personal loan usually comes with a lock-in period, after which you can prepay part of the outstanding amount. This will reduce the loan amount for the rest of the term and you can easily repay it by reducing EMIs.

However, most financial institutions charge a prepayment penalty. You must therefore take these costs into account before prepaying your personal loan.

Opting for a long-term personal loan is an ideal choice in these situations:

1. You’re worried about timely EMI payments

If you are worried about covering the higher monthly payments and affecting your other financial needs because of it, it is better to opt for a longer term as it will help ease the financial burden.

2. You need to manage other high interest loans

If you have to deal with other high interest loans or credit cards, a longer repayment period will be a good choice. This will allow you to divert money to more expensive debts and pay them off sooner.

A personal loan is a one-stop solution for all your urgent financial needs. That’s why opting for a long-term personal loan will not only lighten your financial burden considerably, but also help you improve your financial capacity and take on a higher loan amount.

Are you looking for an affordable personal loan with a transparent and hassle-free loan process? Tata Capital is a leading financial institution that offers you versatile personal loans at attractive interest rates. With personal loans of up to Rs 35 lakhs and an extended loan term of up to 6 years, you can meet all your financial needs with manageable repayments.

Outraged, Personal loans from Tata Capital come with a simple application process and minimal documentation. Visit the Tata Capital website to view their competitive loan offers.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)