In personal finance, it is crucial that borrowers understand the concepts of loan tenor. The tenor is a word that represents the duration of time the borrower agrees to repay the borrowed money from the bank or any instant app.
In this article we are going to explore the importance of personal loan tenor in terms of minimum and maximum duration and its impacts on borrower’s financial concern.
What are Personal Loans?
Personal loans are unsecured loans given by banks or other financial institutions. Today, many people go for personal loans for their business development, money rotation, weddings, house planning, etc.
They need only their salary slip to proceed with documentation and have to submit ID proof and address proof. Everything happens digitally. This time-saving and immediate money-lending technology is very useful for everyone.
Main Features of Personal Loan
Anyone can secure a personal loan to meet their financial needs. The main features of personal loans are as follows:
- Unsecured
- Flexible
- Convenient
- Repayment in EMI’s
Loan Tenor and its effects on borrowers:
The term loan tenor means the duration it takes for a borrower to pay off his/her loan amount. If you are self-employed and don’t have a salary slip, you can provide another source of income documents to get a quick loan.
If you are able to settle the loan amount within a short span of time, you can choose a minimum tenor. Otherwise, select a high tenor with a longer EMI option, so you have more time to repay your loan amount.
Maximum Tenor for a Personal Loan
The maximum tenor of a personal loan represents the maximum time limit duration set by the lenders for borrowers to settle the loan amount. The maximum tenor period, which ranges from 1-5 years, acts as a crucial part for the borrower to repay the lump sum amount within this given period of time.
If you extend the tenor and opt for long-term loans, it will reduce the monthly installments, but simultaneously, it increases the overall interest in the principal amount.
Minimum Tenor for a Personal Loan
If the borrower repays his small loan amount within a year, it is considered a minimum tenor. The minimum tenor period is one year. The borrower must repay the small amount within a year.
In this tenor, the monthly installments are very high, but it decreases the interest in the principal amount.
Minimum Tenor Vs. Maximum Tenor
| Loan Tenor | Minimum Tenor | Maximum Tenor |
| EMI | Lower EMI’s | Higher EMI’s |
| Benefit of Borrower | Large amount with timely repayment | Small amount with quick repayment |
| Financial suitability | Lower monthly income | Higher monthly income |
| Interest rates | Higher overall interest payment | Higher interest rates |
Key Aspects to think about when selecting Personal loan tenor:
Monthly Income: The income of an individual determines whether he is opting for a longer tenor or a shorter tenor.
Existing Debts: If you have any current debts, settle that first and then think about the second one. Don’t take another loan to pay off the first one.
Interest Rate: The interest rate affects your payment directly; a longer tenor means higher interest rates.
Financial Goals: If you want to repay the loan amount quickly, choose a short-term tenor otherwise, you can choose a long-term tenor for longer savings.
Purpose of the Loan: If you need a small loan amount, then you go for a shorter tenor otherwise, for your big needs, like a wedding loan, you can choose long-term tenors.
Age and Credit Score: Persons above the age of 21 are eligible to get personal loans. A good, high credit score secures your loan approval easily.
Which loan tenor is right for you?
Most people always look for immediate results. But as a borrower, you must think about which one is suitable for you based on your income, monthly repayment, and settlement process. If you have a high monthly income, then you take a minimum tenor, or else you take a maximum tenor of a personal loan.
The choice is yours, and the money and time is also yours. Think before you make a decision. Also, ensure you choose the best personal loan lender that gives you a flexible tenor for your loans.
Conclusion:
Financial Management is an art and an essential thing in everyone’s life. If you make the right decision, you lead a smoother life, but if it goes wrong, you are trapped. So, be conscious and aware of your decision to achieve your financial objectives.
FAQ’s
Can I choose a tenor shorter than the minimum specified by the lender?
Yes, you can shorten your tenor after six months of EMI payment.
How does the minimum tenor affect my monthly payments?
A minimum tenor means higher interest rates. If you have a high monthly income, then it is easy for you to pay the higher interest for a short-term tenor.
How does the maximum tenor impact the total interest paid over the loan term?
In a maximum tenor, you can get considerably lower interest rates. This can affect the overall interest rate you pay for your personal loans.
