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March 9, 2020
The term of a Personal Loan or tenure as is popularly referred to be the time period within which the loan granted is to be repaid.
Personal Loan seekers normally give their attention to the rate of interest and other charges to be paid the tenure is often neglected or relegated to the background however the tenure impacts the costs and the texture of a Personal Loan to a great degree and must be chosen judiciously.
Personal Loan tenure is issued for a period of 12 months to 60 months some organizations allow tenure of 72 months in exceptional circumstances. The applicant may request the desired tenure but the lender has the final say. The tenure for a Personal Loan is applied based on the following inputs:
For example, if an applicant earning a salary of 30,000 per month can comfortably pay an EMI for 10,000 to 12,000 per Month. If a personal loan amount of ₹ 300000 Lakhs is needed, the EMI to be paid will vary as per the tenure approved.
| Loan Amount | ₹300000 lakhs |
|---|---|
| rate of interest | 14% |
| Tenure | EMI |
| 12 months | 26936.14 |
| 24 months | 14403.86 |
| 36 months | 10253.89 |
| 48 months | 8197.94 |
| 60 months | 6980.48 |
As depicted in the table above with the current income a suitable tenure for the applicant to pay back the Personal Loan is 36 months: 12 months or 24 months repayment tenure will make the payback unaffordable as the monthly EMI is too high, whereas a tenure of 48 or 60 months will be suitable if the applicant has other obligations or installment to pay. If not, longer tenure is tedious and will make the Personal Loan costlier.
A Personal Loan is forwarded without any security or guarantees hence most lenders are cautious about lending to customers who do not have a secure income, stability and easy contact ability.
Therefore the tenure of the loan is allotted with regard to the profile of the applicant a high-income applicant employed with a company featuring in the company category list is regarded as a premier customer and can apply for an increased loan amount with the maximum tenure.
An applicant who does not have a steady employment history or residence ownership may be categorized as a risky customer, hence will be issued a loan with a restricted tenure.
Although the final decision rests with the Lender or Bank issuing the loan the applicant should be aware that the tenure will play a major role in calculating the total cost of the loan.
The rate of interest for a Personal Loan is charged on a yearly basis and calculated on a monthly reducing balance. The total amount payable is distributed over equated monthly installments as per the designated tenure.
Illustrated below is a hypothetical example showing the costs of a Personal Loan.
| Loan Amount: ₹ 200000 lakhs |
| Rate of Interest charged per annum – 8.25% calculated @ monthly reducing balance of 15%. |
| Tenure | EMI | The total amount paid back | Interest Amount |
|---|---|---|---|
| 12 Months | 18051.66 | 216619.95 | 16619.95 |
| 24 months | 9697.33 | 232735.91 | 32735.91 |
| 36 months | 6933.07 | 249590.37 | 49590.37 |
| 48 months | 5566.15 | 267175.18 | 67175.18 |
| 60 months | 4757.99 | 285479.16 | 85479.16 |
As the interest for a Personal Loan is charged on a yearly basis, the customer will be ahead returning the loan amount within 12 to 24 months as compared to a longer tenure: in effect paying a lesser EMI is not the ideal solution as the loan will be costlier as the tenure increases.
If the applicant can pay back the loan within the shortest tenure there will be major savings affected, therefore if there is no financial constraint returning the loan fast is a better deal!
Although a shorter tenure is more suited for savings there are circumstances which demand that the applicant applies for a longer tenure. Such as when the requirement for a Personal Loan is for a large amount of funds, an extended tenure will ensure greater eligibility.
As per the illustration, an applicant earning a salary of ₹ 35000/- per month needing a loan amount of ₹ 500000 lakhs; disbursed @ reducing rate of 14% per will incur the EMI as depicted.
| Tenure | EMI |
|---|---|
| 12 months | 44893.56 |
| 24 months | 24006.84 |
| 36 months | 17088.81 |
| 48 months | 13663.24 |
| 60 months | 11634.13 |
With the monthly salary drawn the applicant will not get approval or be able to pay the installment for 12 months or 24 months: the tenure of 36 months or more will be most suitable as the applicant will be able to return the loan amount with an affordable EMI.
If there are other expenses to be borne, credit card bills or a Home Loan EMI to be paid, an applicant will be issued a longer tenure so that all payments can be done at ease. It is better to apply for an affordable EMI rather than be strained to pay & miss out or delay payment due.
Understanding the working of personal loan tenure is extremely relevant so the loan may be returned without any constraint within the designated tenure and the lowest costs. It is wise to plan the financials of a Personal Loan by taking into account all aspects of the loan including the tenure which deserves equal attention and importance.
What is the Tenure of a Personal Loan?
The tenure of a Personal Loan is the period of time for which the loan amount is sanctioned.
What is the Tenure Available for a Personal Loan?
The tenure allotted for a Personal Loan by most Banks & financial organisations is from 12 months to 60 months.
Is it Possible to Choose a Tenure for the Number of Months Desired?
The tenure of a Personal Loan is issued on a yearly basis, it is not possible to have a tenure of one’s choosing for the number of months desired.
How is Personal Loan Tenure Allotted?
Tenure for a Personal Loan issued is as per the eligibility of the applicant to pay the EMI.
Can an Applicant Choose the Tenure he Wishes to Pay Back the Personal Loan?
The applicant can request for tenure, but the final decision rests with the Bank.
Does Personal Loan Tenure Remain Fixed or Can it be Changed?
The tenure for Personal Loan once fixed & cannot be changed.
Does the Tenure Affect the Cost of a Personal Loan?
The Interest charged is on a yearly basis thus the longer the tenure of the personal loan, the greater the interest to be paid to the lender.
Can Applicant Increase or Decrease Tenure as Desired?
A loan holder can make a part payment of the loan amount borrowed, the amount will be adjusted & the tenure decreased accordingly.
What Happens to the Tenure of a Personal Loan When one Takes a Balance Transfer or an Additional Amount as a Personal Loan Top Up?
The tenure of the Personal Loan will get re adjusted post a Balance Transfer or Top up.
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