When taking a personal loan, you can decide what loan repayment period or tenure you want to opt for. This matters because it impacts the total interest you pay over the loan duration as well as the Equated Monthly Instalment (EMI) amount you have to pay. A shorter loan tenure is usually ideal because it reduces your overall interest burden and allows you to be debt-free soon. However, there are several situations in which opting for a longer repayment term may be a better option. Let’s take a look.

  • When you are paying other debt

If you already have debt other than the personal loan, such as a home loan or credit card debt, it may be better to opt for a longer repayment tenure as it will help reduce your monthly EMI obligations. This is because a longer repayment tenure reduces the EMI amount you have to pay monthly. This is helpful especially if the other debt is high-interest debt, as it will allow you to divert more of your money towards paying off that debt sooner and reduce your interest burden.

  • When you need a higher amount of loan

Either for an emergency or to meet certain financial goals such as buying a car or funding your wedding, you may need to borrow a high amount. For life milestones like these, you wouldn’t want to skimp on anything due to budgetary constraints. And here a personal loan is helpful because you can borrow up to Rs 40 lakh  without any collateral and use these funds to meet your goals or obligations. When you opt for a longer repayment term, it gives you the freedom to apply for a high loan amount as you can pay it off comfortably over a longer period.

  • When you want to maintain a good credit score

A longer repayment tenure would mean lower monthly EMI obligation, which would reduce your chance of default. This is crucial as defaulting on your personal loan EMI impacts your credit score negatively making it difficult for you to get loans in the future on good terms. So, if you have an EMI amount that you can comfortably pay every month, it will ensure that you never miss any EMIs and build a good credit score over time.

Ending note

To determine the repayment tenure that will be ideal for you, you can use a personal loan EMI calculator. Using this helpful online tool, you can enter various repayment tenures for the loan amount you want and see how that impacts your interest outgo and EMI amount. This way you can have clarity on the influence of your repayment tenure on your personal loan, along with your discretionary expenses, and better manage debt once you click on that personal loan apply button.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.