We all need a loan at some point or another. When you go to a bank or financial institution seeking a loan, you are typically offered different tenure loans for repayment. This brings us to the question: which loan tenure best suits you?
Here in this blog, we will present the idea of loan tenure, the shortest possible durations, and the most important things to take into consideration prior to choosing a repayment period. We will also consider the advantages and disadvantages of short loan durations to assist you in making the right choice.
While longer tenures may seem convenient due to lower EMIs, shorter loan terms offer quicker debt clearance and lower overall interest costs, making them an ideal choice for borrowers who want to reduce their financial burden swiftly. The minimum tenure varies by lender, but typically ranges from 12 to 24 months for personal loans. Understanding how these durations affect your repayment capacity, credit score, and future finances is key. Let us first know what a loan tenure is.
What Is Personal Loan Tenure?
Personal loan tenure is the duration for which the borrower commits to repay the amount, as well as the interest to the lender. The tenor would range from 12 to 60 months generally, but some finance companies would extend the same for longer periods in special situations. Thus, it becomes quite vital to choose a proper loan tenor because that will reflect directly on your Equated Monthly Installments and overall interest outgo.
Factors That Influence the Minimum Tenure of a Personal Loan
The following parameters determine the minimum tenure of personal loans:
1. Lender Policies
Each lender has its policy, which determines the minimum loan tenure it can provide. Banks may specify their personal loan tenure to five years, but fintech operators are transforming the lending scenario because most of them provide tenure options as per the varied needs of the borrower.
2. Stability of Income
A consistent income can make the lender agree to provide shorter tenures since it ensures repayment capacity.
3. Credit Profile
Those borrowers who have good credit history and repayment records are usually offered shorter tenures since lenders believe them to be low-risk borrowers.
Advantages and Disadvantages of Shorter Tenure of Loan
Advantages:
Less Interest Outgo:
Shorter tenures imply the interest is charged over fewer months, thus decreasing the overall interest outgo on the loan.
2. Earlier Debt Repayment:
Early repayment makes the borrower debt-free early on, freeing up time for other financial targets.
3. Improved Interest Rates:
The lenders might provide a marginally better rate of interest for smaller tenures as these are lower-risk products.
Downsides:
Increased EMIs:
The EMI load is greater in the case of a short tenure and can burden the budget if not managed wisely.
2. Restricted Eligibility:
Borrowers could get lower amounts approved as the lenders consider the affordability based on higher EMIs.
How to Select an Appropriate Personal Loan Tenure?
Check Your Monthly Budget:
Employ an EMI calculator to calculate what EMI you can pay without any problem. Ensure that your other critical expenses are not affected.
Select Tenure with Objectives:
If you will be taking further loans shortly or saving aggressively, a shorter tenure will enable speedy repayment of the loan and cut down long-term liabilities.
Recognize Loan Terms
Compare personal loans between money lending companies, personal finance companies, and personal lending companies. Check if any of them have better deals for short tenures.
Choose Flexibility:
A few lenders, such as Stashfin, provide flexible tenure options to enable you to strike a balance between EMI affordability and overall interest cost.
Effect of Tenure on EMI and Interest:
Selecting a shorter personal loan term raises your EMI but saves you interest. For instance, a 1-year loan has significantly higher EMIs compared to a 3-year loan, but you pay significantly less in overall interest. This is best suited for borrowers with high cash flow and a clear repayment plan. An extended tenure lowers EMI but makes the loan costlier overall.
Minimum Tenure Available from Different Lenders:
Banks:
Banks typically offer personal loan tenures starting from 12 months.
NBFCs:
Some NBFCs offer shorter tenures starting from 6 months, especially for small-ticket loans.
Fintech Platforms:
Platforms like Stashfin are known for flexible offerings, including short-term loans starting from even 3 to 6 months, based on borrower profiles.
How to Manage a Short-Term Personal Loan:
Budget Aggressively:
Plan your monthly spending around your EMI commitment to ensure timely repayment.
Avoid Other Debts:
Restrict your exposure to other credit or loans throughout your short-term loan period.
Emergency Fund:
Have an emergency fund available for unexpected expenses or loss of employment, so your EMI payments are not interrupted.
Track Payments:
Create reminders or go for auto-debit to never miss an EMI and have a healthy credit record.
Conclusion:
Selecting the shortest term for a personal loan will save you lots of interest and pay off debt quicker, if your budget can support increased monthly payments. Stashfin, a reputable personal finance company, provides tailored solutions with flexible, transparent conditions. Whether you need a loan for an unexpected expense or to cover a temporary cash shortfall, Stashfin is one of the money lending websites that sets itself apart from the rest by making your borrowing process easier.
Assess your earnings, objectives, and ease of affording EMIs to decide intelligently. Shorter periods can be an intelligent approach to maintain your money path concise and effective.