The tenure or repayment term for a Personal Loan is the time allotted to a customer to return the loan amount. The tenure allotted for a Personal Loan is from a minimum of 12 months to a maximum of 72 months, whereas an applicant can repay a mortgage or Home Loan for up to 30 years.

The importance of tenure in planning repayment should not be underrated. The repayment plan must be worked out before funds are appended to fulfil a need for personal use, buying a home, or business purposes. The applicant can repay the loan via equated instalments or EMI over the allotted tenure or period.

How Does a Lender Decide the Tenure for a Loan?

Can an applicant request tenure from the lender to repay the loan? An applicant can put forth the request, but the lender takes the decision keeping in mind the following:

Bank policy: The lender has the final say regarding the tenure of a Personal Loan allotted to a customer and adheres to the individual policy. Prominent Banks such as HDFC Bank issue a Personal Loan tenure of 18 months up to 84 months in the case of an HDFC Golden Edge Personal Loan. ICICI Bank issues a Personal Loan with a maximum tenure of 72 months. NBFCs such as TATA Capital are conservative in the repayment length and will forward a Personal Loan for a maximum of 60 months.

The Income of the Applicant: The loan amount and loan tenure issued to a customer are primarily calculated based on the customer’s monthly income. The math for calculation is according to the lender’s policy, but the basics are similar. Some banks use a multiplier method, while others issue loans according to a percentage of the income. In either case, an applicant earning a higher income can afford to pay more as an EMI and repay the loan within a shorter tenure.

The Loan Amount Granted: The loan amount awarded to an applicant is based on the customer’s financial eligibility to repay the EMI. An extended tenure is applied for increased loan amounts, considering an applicant’s budgetary restrictions. Applicants earning a higher income are eligible for increased loan amounts, which can be repaid with a suitable EMI, whereas customers with a lower income look for an extended tenure to achieve an affordable EMI.

Age of the Applicant: A salaried applicant can repay a Personal Loan until retirement age, usually 58 to 60. The retirement age depends on the type of employment if an applicant is employed with a government organisation and provides proof of job extension, HDFC Bank may consider extending the tenure. Therefore, if an applicant is 56 years old when applying, the Personal Loan Eligibility for the loan amount is calculated, taking into account the repayment tenure of a maximum of 4 years. Retirement benefits and a regular pension are also considered when issuing a mortgage tenure.

Company of the Applicant: The applicant’s employer is given a lot of weight when allotting the terms of a Personal Loan. A customer employed with an organisation featured in the HDFC Bank Company Category List in the premier category is offered exclusive terms for a Personal Loan, such as a discounted interest rate and an increased loan amount repayable over an extended tenure of 84 months. In comparison, a customer employed with a Category C-listed Company will be asked to repay the Personal Loan within 48 months.

The CIBIL Factor: An individual’s CIBIL Score is crucial in appending further credit. An applicant’s previous credit usage and repayment history are the basis for getting additional credit.

A good Credit Score with a healthy repayment history boosts the customer profile. Lenders are willing to issue increased loan amounts for a maximum tenure to applicants with a CIBIL Score of 750+ as banks are confident of timely repayments and trust that customers will repay unsecured personal loans for a longer tenure.

Customers who are first-time loan seekers are allotted a shorter tenure, but a sound repayment track will build confidence for future credit.

Certain factors need to be carefully considered before accepting the allotted tenure:

Finalising a Tenure:

• Once your loan is approved, you will be informed about the loan terms, including tenure, interest rate and EMI. Once allotted the tenure cannot be changed, and the EMI will be presented to your salary account every month on the designated date. Therefore, the following must be noted.

The Tenure Remains Fixed:

• The EMI will vary according to your loan’s interest rate and tenure. Ask for a tenure change if the EMI does not suit your budget. If you feel the EMI is too steep, ask for an extended tenure or take a lower loan amount. A change is possible at this stage of the process, but once the agreement is signed and the funds are transferred to your account, you need to honour the EMI.

The Effects of a Tenure on the Loan Cost:

• The cost of your loan will also vary according to the tenure, for example:

For a loan amount of ₹ 1 Lakh, interest is charged @ 12% at a reducing balance.

Loan amount repaid with interest over 18 months: 109764.00

Loan amount repaid with interest over 24 months: 1129784.40

Interest is charged annually for the term or tenure of the loan amount taken. You pay interest for how long it takes to repay the loan or the allotted tenure. Therefore, if you can afford to pay a higher EMI, opt for a shorter tenure and spend less as interest.

Option Of a Balance transfer for a tenure change

• If at any point you feel that you are unable to afford the EMI, do not wait for a default to happen. Opt for a Balance Transfer of your loan to an alternate lender. With a Personal Loan Balance Transfer, you can rework your tenure and EMI and get surplus funds as a Personal Loan Top-up.

In Conclusion:

The repayment tenure for your loan is as significant as the interest rate and the loan amount. Before taking a loan, consider an appropriate tenure per the key points above our EMI Calculator will help you choose a suitable tenure. Ideally, completing your unsecured loan over the allotted tenure works best, as timely repayment of the EMI will give you a healthy CIBIL Score and pave the way for easy further credit.