Personal loans, which are granted for numerous purposes, come with tenures ranging from 1-5 years at varied interest rates. Financial advisors often suggest keeping the personal loan tenure relatively shorter to reduce interest obligations. Besides savings, you can get rid of a loan and concentrate on other important things with the same. But rosy stuff cannot be synonymous with all; some may face issues of income, high expenses and may already have a debt. All that may lead to loan default with a shorter tenure. Something which you cannot afford given how badly it affects your CIBIL Score and makes you ineligible for credits later. So, increasing the tenure can help overcome such unpleasant scenarios. Let’s read further to know more.
Situations That Call for an Increased Personal Loan Tenure
Ideally, one should take a personal loan when having sufficient income to pay the EMIs. But things don’t work the way we may plan. A sudden medical emergency may creep in or you may require a large sum of money for your wedding. And if you are already dealing with the following situations, increasing the personal loan tenure may prove right for you.
When Income Does not Remain High
Your earnings to a great extent decide your loan repayment potential. If it’s not high, go for a relatively long tenure to accommodate the Equated Monthly Installment (EMI). For example, if you’re earning INR 40,000 a month and the EMI comes as INR 15,000 for a 4-year tenure, the bank will approve the loan as the installment forms less than 40% of the income. But you can’t deny the possibility of expenses rising beyond what you may budget for. So, increasing the tenure by a year can reduce the EMI further and account for that sudden rise in expenses you may witness.
When You’re Relatively New in Your Career
Although a total work experience of two years and a year with the current employer is enough for a personal loan, you may not feel that secure in a career of 2-4 years. Job stability may not be the greatest at such points. So, the lesser the monthly obligations, the easier you would feel paying the same. That you can ensure by increasing the personal loan tenure.
When You’re Already Having a Loan
An existing loan would most likely force lenders to increase your personal loan tenure. Lenders want the total EMI outgo (EMI of existing loans + EMI of the new loan) to be within 30-50% of your net monthly income. Income-wise, the percentage can vary. But some may still be eligible for a shorter tenure given their higher income. But if the existing loan has a fair distance to cover, getting the monthly obligations reduced by increasing the new personal loan tenure won’t be bad. And if you get a hefty bonus while servicing a loan, you can clear either of the two or both debts using the same.
The above situations do warrant a longer personal loan tenure. But choosing the loan at a lower rate of interest would help you strike a balance between the EMI and overall interest payments. So, go online, compare the personal loan interest rates and see which offers you the least.