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Long-Term Personal Loans: Advantages & Risks

By Finserv MARKETS - Jul 29,2019
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Long-Term Personal Loans: Advantages & Risks

You need assets to take a loan on mortgage or collateral. Even if you own collateral-worthy assets, the documentation, processing and approval period is tedious and time-consuming. You need gold for a gold loan and credit card loans are the most expensive available on the planet. So, what do you do? Your best bet is a personal loan when you need a loan urgently.

However, don’t take that term ‘bet’ literally because taking a personal loan is not a bet but something you should plan carefully. The best adjectives we can use to describe a personal loan are ‘quick’ and ‘easy’. That’s a sort of hallmark of a personal loan and also the reason why most people prefer them over secured loans despite the higher interest rates.

Keeping in mind the importance of ease and speed when people opt for a personal loan, Finserv MARKETS assures super-fast and convenient long-term Bajaj Finserv personal loans that are disbursed in a few minutes with minimum documentation. Customers don’t even have to visit the bank and there are no guarantors required.

Taking a long-term personal loan has its advantages and disadvantages. Though, when it comes to personal loans, the longest tenure that you usually get is 60 months or 5 years. Some financial institutions may offer 6-7 year tenure personal loans, but that is an exception rather than the norm.

Advantages of Long-Term Personal Loans

  • Higher loans with lower EMIs: Financial institutions compare your monthly income with your monthly EMIs to look at your creditworthiness. A personal loan with a longer tenure or maximum tenure (5 years) will reduce your EMIs and you may be eligible for a higher loan amount.

The chart below will give you an idea of how you should regulate your monthly outflow of EMIs to maintain good credit health.

YOUR IDEAL MONTHLY OUTFLOW OF EMIs

Long-Term Personal Loans: Advantages & Risks

HOME LOAN

Not more than

40% of net monthly income

CAR LOAN

Not more than

15% of net monthly income

PERSONAL LOAN

Not more than

10% of net monthly income

  • Freedom of spending: Unlike a long-term home loan, gold loan or home renovation loan, you have the freedom of spending a long-term personal loan as per your requirement. You can spend it on a holiday to a foreign destination, finance a wedding, buy appliances, take care of home renovation, and a whole lot of things as you deem fit.
  • Opportunity to improve credit score: A long term personal loan is an ideal opportunity to improve your credit score. Building or repairing your credit score is not a short term affair; it requires years of effort. So, a long-term personal loan with lower EMIs gives you a great chance to improve your credit health. It also helps you to inculcate financial discipline as you make timely repayments and become more conscious of maintaining an ideal loan to income ratio. Loan to income ratio is your total monthly EMI outflow divided by net monthly income and multiplied by 100.

This is how you calculate your loan to income ratio:

LOAN TO INCOME RATIO = TOTAL EMI/NET MONTHLY INCOME*100

According to experts, a loan to income ratio of 25% is best. From 25% to 40%, you have to start getting cautious. If the ratio crosses 40%, you are already stressed, and you have reached an alarming stage if it exceeds 50%.

  • Top-up loan eligibility: With personal loans of longer duration you are eligible for top-up loans after you complete your EMIs for the first year. If you have taken a personal loan with tenure of five years and if you have not defaulted on your monthly repayments, you are eligible for a top-up loan for four years. You don’t get the same privilege with short-term loans.

Disadvantages of Long-Term Personal Loans

  • Higher interest rates: Whether it’s a short-term or long-term personal loan, you have to shell out more money when repaying a personal loan. Banks charge a premium for hedging risks associated with unsecured loans such as a personal loan.
  • You give back more than you get: The problem with long-term loans is that you pay considerably more than you get. As the loan tenure increases, your repayment amount increases. If you have taken a floating interest rate personal loan, you will be subject to the vagaries of the financial market as the Marginal Cost of funds based Lending Rate (MCLR) fluctuate. When there is an increase in the MCLR, banks tend to increase lending rates (if they are not fixed) to shield themselves.
  • Keeps you debt-ridden for longer: This is a no brainer but certainly something you must keep in mind. The longer your loan tenure, the harder it is for you to get debt-free and start saving to increase your net worth.

Bajaj Finserv Personal Loan from Finserv MARKETS is one of the fastest and most hassle-free ways of taking an urgent, long-term personal loan. There are no agents or DSAs in between and you can receive the amount in your bank account within 24 hours. You don’t have to worry about pledging security or collateral nor are there any requirements for a guarantor.

You need assets to take a loan on equitable mortgage or collateral. Even if you own collateral-worthy assets, the documentation, processing and approval period is tedious and time-consuming

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522