How Loan Tenure Impacts Repayment of Your Personal Loan?

Getting a pre-approved personal loan is a cake walk for salaried individuals, especially for an amount like ₹2-5 lakhs you simply need to submit the requisite documents and your loan amount gets credited to your bank account, almost immediately.

Getting a personal loan helps you live your holiday dreams and comes to rescue your financial crisis too, however, personal loans usually have a higher rate of interest than other loans, therefore, getting a personal loan is not a favorable choice. It can add extra burden on your already existing EMIs and repayments. Thus, only in matters of absolute emergency it is advisable that you may resort to a personal loan.

While taking a personal loan, you must choose your repayment plan carefully and preferably should opt for short repayment period so as to incur less burden of interest. Although, the EMIs in a short tenure plan will be higher in comparison to the plan with a long tenure but you will end up paying much lesser interest.

Let’s say, Mr. Amar obtains a personal loan of ₹2 lakhs at 14% interest and he has 3 plans with different loan tenures to choose from viz:

The 1st plan has a tenure of 1 year wherein the EMI is ₹17,957; total interest due will be ₹15,489 and the total repayment amount will be ₹2,15,489.

The 2nd plan available is for 2 years wherein there is a lower EMI of ₹9,603 but a higher interest rather almost double ₹30,462 will be incurred and the repayment amount will be ₹2,30,462. Also, the burden is not just on your pocket but on your mind too, when you have to linger on with a loan for 2 years.

The 3rd plan is for 3 years with the lowest EMI amongst the 3 plans i.e. ₹6,836 and the highest interest of ₹46,079. The repayment amount comes up to ₹2,46,079. The low EMI can weigh less burden if you are in a financial crisis and you’ll get ample time to pay back the loan.

The above three examples show that as the loan tenure is extended, even though the monthly EMI reduces, but the interest burden spikes, which in turn increases the repayment amount.

As per experts, personal loans must not be taken unless you are in a financial crisis. For planning holidays, buying jewelry, gifting a lavish gift or buying a nice gadget, you must plan your finances in advance and then fulfill your short term luxury goals.

You must also take a health insurance cover to avoid financial crisis during a medical emergency. Planning your finances well can help you save more money and steer clear of interest burden that personal loans entail.