Long-Term Personal Loans vs. Short-Term Loans: Which is Right for You?

long term personal loans

In the dynamic financial landscape, borrowers have a myriad of financing products with unique characteristics offering numerous advantages. Among these options, personal loans have become an increasingly popular choice. With the growth in FinTech lending, loan disbursement volume increased by a whopping 153% during the previous year – a total of 2.74 crore loans. Personal loans are the dominant products – 96% of the total disbursement volume. 

Introduction to Personal Loans

Personal loans are a viable solution offered with flexibility. They are unsecured, easily accessible against simple eligibility and multi-purpose loans that can provide as high as 25 lakhs. Customers can use the loan amount as per their desire or needs. Utilise it to fund a wedding, education, travel, small or major purchases, debt consolidation, or overcome sudden financial emergency, or other personal or business purpose. Borrowers can apply for short-term or long-term personal loans.

With adequate knowledge, borrowers can take action to secure a personal loan with appropriate repayment tenure and save on the borrowing costs. Here is an informative post to chhose a right fit personal loan tenure.

Personal Loan Tenure 

A loan tenure or repayment tenure is the period between the loan amount disbursal and the last EMI on maturity. 

A personal loan can be a short-term or long-term loan. Lenders consider the preferred tenure to determine interest rates on a personal loan. Therefore, opting for a suitable tenure is crucial when completing the personal loan process (steps). Generally, personal loan tenure is available with a flexible repayment tenure of 12 – 60 months.

Short-term vs. Long-Term Personal Loans – Which is Right?

When selecting short-term or long-term personal loans, borrowers must consider crucial factors that can influence the loan terms, like interest rates. Key aspects to decide on the loan tenure are explained below:

The Funding Requirement

When borrowers need funds to meet larger costs of debt consolidation, home renovation, major purchases, etc., borrower may look for a longer-term.personal loan. On the contrary, if customers want to overcome short-term financial crunches or meet emergency expenses, short-term loans are considered suitable. Similarly if the loan amount is small, borrowers can consider a short-term loan. Otherwise, a longer- term repayment tenure is a suitable option as it can be convenient to repay a large loan amount. 

Repayment Capability

Borrowers need to consider their finances and assess their ability to repay the loan. They need to determine if they can repay the loan within a specific time frame. Borrowers can consider long-term loans for extended repayment periods, up to 60 months, if their monthly budget can adjust only with a small EMI (Equated Monthly Instalment). On the contrary, a short-term personal loan results in high monthly instalments. Individuals with a steady and high income may be able to manage high EMIs.

Interest Rates

Borrowers can compare the interest rates offered for different tenures. Generally, long-term loans are offered with lower interest rates as EMIs are spread over a longer period. It increases the chances of timely repayment with small EMIs. However, individuals should note that a long-term loan increases the overall interest cost. A short-term loan may be offered with a higher interest rate comparatively due to higher perceived risk during their shorter repayment span. Still, in comparison, the overall interest cost remains lower for shorter-term loans. For a cost-effective loan, many borrowers may consider a short-term personal loan.

Speed and Flexibility

Typically, applications with long-term tenure need to go through lengthy approval processes as it may involve more paperwork. On the other hand, when it is a short-term loan, borrowers can expect a faster application approval process. Therefore, a short-term personal loan is considered a suitable option to meet urgent financial needs.

How Personal Loan Calculator Helps Borrowers

A personal Loan EMI calculator is a ready-to-use online tool that allows users to determine their loan EMIs. Prospective borrowers can try different combinations of loan tenure and loan amount and understand which is the most suitable tenure considering their financial stability. Users can adjust the figures for the loan amount, interest rates, and personal loan calculator to reach an ideal EMI amount. Borrowers can use the calculator as many as times they want. Helping customers, lending institutions offer this advanced tool for free on their official website.

Let’s say –

  • The loan amount is Rs.1 lakh.
  • The interest rate is 11.99%.
  • Loan tenure is 60 months. 

The calculator can quickly show the results as follows: 

  • EMI: Rs.2,224
  • Total Interest Payable: Rs 33,436

The Conclusion

Ease of digital processing, minimal eligibility and documentation, tenure facility and faster approvals make most borrowers opt for a personal loan. While both long-term and short-term loans have their benefits, one must be aligned with their financial conditions and consider their projected cash flow to determine suitable tenure for a personal loan. 

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