From buying a new car to studying abroad, a personal loan can cover your financial worries, an instant personal loan allows you to choose the duration of repayment of the loan at your convenience. Depending on your situation and personal circumstances, you can choose either a short-term or a long-term period.
It is ideal to choose a long-tenure loan as it helps maintain your financial stability without hampering your savings. The longer-term allows you to spread out the payments so you are not in a tight spot financially.
Let us look at the major benefits of a longer repayment term of interest rate for personal loan and why you should choose it.
Benefits of a longer repayment term of a personal loan:
The duration of a loan plays a vital role when borrowing a personal loan. It not only changes your financial situation but also reflects your journey after committing to a loan. For instance, knowing whether you will be able to maintain a balance between repayments and savings and if you will be able to make timely payments without default.
Moreover, all these factors are critical when your credit score is measured. If you default on repayments, your credit score is adversely affected. This affects your chances of securing funds in a time of need in the future. Thus, you must ensure you are only taking on as much as you can repay, and for such a duration that eases your monthly repayment burden.
Here are some of the benefits of a longer repayment term, which will help you make wise decisions while taking an instant personal loan.
Repayment of a loan at lower EMI rates:
With a longer repayment term comes the benefits of lower EMI rates. This is because the amount that you have to repay gets divided over a longer term, thereby lowering your per-month payment. This helps you curate a proper budget that you can stick to without overburdening yourself.
The opportunity to borrow a large amount of money:
The loan amount is an important factor to consider when planning to borrow money from the bank. With a longer repayment term, you can go for a larger loan, considering you will have a longer time to make the repayment. During this duration, you can improve your capacity to repay and become more financially stable.
It saves you from falling behind in repayments of the loan:
A lower EMI rate minimizes the financial stress of managing your loan repayments. As the repayment amount is spread over a more extended period, the amount is reduced to a large extent which can help in timely repayments.
In addition to this, timely repayments reflect positively on your credit rating and can make it easier to obtain loans from the bank in the future. Staying on track is a great indicator of your creditworthiness.
You can develop a higher credit score:
A credit score is a three-digit rating given by credit rating agencies. In India, the CIBIL score is the most widely used measure. It ranges from 300 to 900, with a higher score indicating greater creditworthiness. When you apply for a loan, the banks consider your credit history as it helps them understand your ability to repay. If you have longer tenure, repaying is less cumbersome. This can, in turn, reflect well on your credit rating.
However, it takes years of hard work to build a good credit score which can be achieved through disciple and sound money management.
Make room in your budget for other expenses:
When you choose a longer-term repayment, your monthly installments reduce, allowing you to make space for your other obligations like your monthly bills, premiums, rent, etc.
You can also invest your money in other kinds of securities, such as mutual funds, policies, etc., in order to secure your financial condition.
Feasibility of prepaying the loan:
Since a longer-term repayment of your loan allows you to save a large chunk of your earnings, you can always choose the option of prepaying a portion of the principal amount. This way, you will not have to be concerned about the increased value of the loan over a period of time.
It will also reduce the loan amount for the remaining period allowing you to repay it comfortably with lesser monthly installments.
An instant personal loan is an immediate solution for your financial needs. But, how you choose to repay can significantly affect your financial situation and credit score. Most individuals opt for longer repayment tenors as it helps them effectively manage their EMIs, and makes space for other financial obligations. If a long-tenure loan is well-paid, it can boost your credit score. So, keep in mind the above-mentioned advantages to decide which mode of repayment suits you best.