Long-Term Personal Loan: Pros and Cons

Pros & Cons of Long-Term Personal Loan

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17 May 2019

Personal loans are multi-purpose loans that enjoy high demand in the financial market. These loans are unsecured (you do not have to provide any collateral against them) and offer flexibility in terms of their repayment options as compared to the other types of loans. Normally, a personal loan tenure lasts up to 1-5 years. Such personal loans are termed as short-term personal loans. For example, the Bajaj Finserv Personal Loan assures a flexible repayment of EMIs over a period of 12-60 months.

However, certain banks and NBFCs (Non-Banking Financial Companies) grant the facility of availing a personal loan for a further extended tenure. These personal loans are termed as Long-term Personal Loans.

What Are Long Term Personal Loans?

Long term personal loans are personal loans whose tenure extends for more than five years. A borrower can decide on availing a long-term personal loan at the time of applying for a loan. Long-term personal loans are preferred by borrowers when they are keen on paying lesser EMIs as compared to the standard EMIs for short-term personal loans.

The decision to avail a long-term personal loan facility should be made only after careful consideration of your future financial goals and responsibilities. To help make an informed decision, Finserv Markets brings to you a comprehensive analysis of the pros and cons of availing a long-term personal loan. Download the Finserv MARKETS Loan App to know more about long-term personal loans.

Pros of a Long-Term Personal Loan

  • Improves Loan Eligibility

When you decide to opt for a long-term personal loan, you get the benefit of availing a large amount. Also, since the loan tenor stretches to a significantly longer period, it reduces the overall financial burden on the equated monthly installments (EMIs). Since the amount for installments that stretch over this long tenure is comparatively less, there is a less chance of the borrower defaulting on his/her payment. This makes a positive impression on the personal loan provider and significantly improves your chances for availing a personal loan.

  • Decreases the EMI Amount

Often the EMI amount for a personal loan is inversely proportional to the length of the loan repayment tenure. Longer the tenure, lesser the EMI and vice versa. Thus, availing a long-term personal loan considerably decreases the EMI amount. This helps in proper budgeting of your finances over the lengthy loan tenure and helps avoid any financial strain on your monthly budget.

  • Boosts Credit Score

Taking a personal loan is a great way to improve your credit score. If you apply for a long-term personal loan, it improves your chances of achieving a good credit score even further. This is because the credit score is built over time. Hence, if you apply for a long-term personal loan, and diligently pay all the EMIs on time, it would reflect positively on your credit score in the long run. Not only that, but this improved credit score significantly increases your privileges for getting exclusive offers and discounts on future loans.

Cons of a Long-Term Personal Loan

  • Higher Interest

The interest rates associated with long-term personal loans are much high as compared to a short-term personal loan. This is because the personal loan interest rates are calculated in a compound manner. Thus, longer the loan tenure, higher will be the compound interest rate. This high interest rate considerably increases the total amount to be repaid. Therefore, it may happen that you end up repaying a much larger amount than what you initially borrowed. To estimate the interest and the total EMI to be paid for your long-term personal loans, you can make use of online tools like personal loan EMI calculator and eligibility calculators.

  • Long Debt Tenure

Prolonged loan tenure means a long period of debt. Thus, until and unless the long-term personal loan is repaid, you may experience a feeling of being debt-ridden for a longer length of time. This would mean, that you will have to plan and maintain a healthy budget throughout the length of the long-term loan. Make sure that your long –term debt does not come in the way of your long-term financial responsibilities and future investments. Furthermore, if you are planning to take any additional loans in the future, make sure that you have the EMI options for your existing long-term personal loan sorted. In case you default on any of your EMIs for the existing personal loan, it could reflect poorly on your credit score. If you do not have a good credit score to back you up because of your existing personal loan, it could become extremely difficult to convince personal loan providers to grant you any additional personal loans.

  • Pre-Payment Penalty:

Pre-payment is when you decide to partially or completely repay the outstanding balance of your loan before its decided tenure. A full or partial pre-payment of your personal loan can significantly cut-down your overall EMI amount and reduce the interest to be paid. However, certain personal loan providers levy a penalty on the pre-payment of a personal loan. In such cases, if you end up pre-paying for your long-term personal loan, you might have to pay a hefty penalty for it.

The tenure of your loan is ultimately going to affect the total EMI for your personal loan. If you do not want a long-term debt looming over your finances, you can opt for the short-term personal loan option. However, if you are planning to lessen the burden on your monthly EMIs, availing a long-term personal loan is definitely a suitable option. However, make sure that you do not overlook the higher interest rates involved.  To ensure a sound financial decision, it is advisable that you carefully weigh all the pros and cons of a long-term personal loan before submitting your personal loan request. To explore more long-term personal loan options, visit Finserv Markets today!


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