Mr Reyansh is a young man who started off his career two years back. Reyansh works for a well-known multinational corporation and earns a good salary. His parents urge him to marry now as he has a reliable career. Reyansh, on the other hand, is concerned about rising wedding-related costs and plans to finance his wedding through a personal loan. However, he is confused about what personal loan maximum tenure he should choose in order to properly manage his expenses. This article will address his worries by highlighting the aspects to consider while determining the ideal personal loan maximum tenure.
Factors to Consider While Choosing Personal Loan Maximum Tenure
- Monthly Income:
Analysing your monthly savings and spending patterns is one of the most effective ways to identify your ideal personal loan tenure and EMI. Check to see if there are any superfluous expenses on the list Before you decide on your personal loan maximum tenure, make a list of your monthly expenses and see how much you are able to save. that you can eliminate. You must also consider your existing debts’ monthly instalment payments. After you have made your list and calculated your monthly savings, use a personal loan EMI calculator to determine the term and EMI. In case you are still not sure, you can use the 50/30/20 financial rule, where 50% reflects the portion of your income that goes into meeting your expenses, 30% reflects your other miscellaneous or luxurious expenses, and 20% reflects your savings. This rule of thumb can assist you in determining the perfect personal loan maximum tenure.
- Loan Amount:
This is another critical factor that borrowers must consider when determining the ideal repayment period. This is because the amount of your loan is so essential it not only influences your repayment period but the interest component as well. If you plan to take out a small personal loan that is equal to 3-4 times your monthly income, you should opt for a shorter repayment tenure. As a small loan amount will not put a strain on your budget, paying it off quickly will save you a lot of money on the interest component. However, if you are seeking a higher loan amount, a longer repayment period is ideal. As a borrower, always bear in mind that a longer repayment tenure means a higher interest component and vice versa.
- Consider Existing Liabilities:
Assume you are seeking a personal loan but are already in debt due to credit card payments, house loan EMIs, and gold loan EMIs, among other things. In this scenario, you will find yourself in a confusing situation whether to opt for a longer tenure loan or a shorter tenure loan. Because if you take out a short-term personal loan, your EMI will be larger, making it more difficult to pay off your previous debt. And when you opt for a longer-term loan, you need to pay a high-interest component. As a result, consider your current liabilities and debt-to-income ratio before deciding on your personal loan maximum tenure.
- Personal Loan Interest Rate:
Your personal loan interest rate is determined by a number of criteria, including your monthly income, credit history, and age. If you have a good credit history, the financial institution will provide you with a personal loan at a lower interest rate. As a result, take full advantage of it by choosing a loan with a shorter term and save money on interest. However, if you have a bad credit history, a longer repayment tenure is preferable. This is because a shorter repayment term with higher interest payments will work against you and severely affect your budget. Choosing a longer personal loan repayment term improves your credit history, which can help you with future loan applications.
- Future Financial Prospects:
When deciding on the personal loan maximum tenure, it is a good idea to think about your future expenses and plans, as well as any upcoming salary increments. In case you are expecting an increment, opt for a shorter tenure personal loan by paying a higher EMI. However, a personal loan with a longer repayment tenure is ideal for you if you are planning a family or anticipate any large expenses in the near future. Before making any decision, make yourself aware of the fact that paying off higher EMIs will be a challenge at first, but in the long term, your total interest component will be much lower.
By choosing an ideal personal loan maximum tenure, you not only save a lot on the interest component but also plan your budget effectively. Selecting the right personal loan term and paying your EMIs on time will help you establish a positive credit history, which will help you get a low and affordable interest rate on future loan applications.