Personal loan tenure: How it impacts EMI, interest costs and borrowing decisions

A personal loan tenure refers to the period during which a borrower can repay the borrowed sum of money. This repayment includes both interest and principal. It is important for aspiring borrowers to understand the basic concept of a personal loan tenure, as it has a direct impact on one’s monthly EMI and the overall cost of borrowing.

1. Typical tenure ranges

• Most banks and financial institutions provide personal loan tenures between 12 months and 60 to 84 months, i.e., five to seven years.
• For example, leading banks such as Axis Bank, HDFC Bank, and Kotak Bank offer customers up to 84 months as repayment tenure, provided the borrowers meet basic eligibility criteria and credit score requirements.
• Prominent NBFCs such as Bajaj Finance also offer flexibility in repayment tenures. They provide borrowers with varying repayment tenures that begin with 12 months and can go up to 96 months, i.e., 8 years, depending on the applicant's borrowing profile and loan amount.
• Lenders such as Piramal Finance also provide minimum tenures that begin with as low as nine months, though it is prudent to reach out to the respective lending institution to confirm the exact details based on the applicant's credit profile.

2. How loan tenure impacts your cost of borrowing

• Shorter tenure: A shorter total repayment tenure results in higher monthly EMIs. It also ensures that the total interest paid is lower.
• Longer tenure: When the total repayment tenure is longer, it results in lower monthly EMIs. It also ensures that the total interest paid is higher.
• Choice of tenure: The choice of tenure depends on the borrower's current financial health and repayment capacity. It should be decided after proper due diligence and consultation with a certified financial advisor.
• Objective of borrowing: The primary aim of any borrower should be to borrow only when it is absolutely necessary. The focus should be on developing an easy personal loan EMI to clear out the loan without putting excessive burden on one’s monthly income. For this, aspiring borrowers can use the personal loan EMI calculators provided on the official websites of leading banks and NBFCs.

3. What borrowers should consider when choosing a tenure

There are several important factors that borrowers must keep in mind while going ahead with a tenure:

• Monthly budgets: Before going ahead with any personal loan application, tenure and EMI decision, you should sit down and understand your monthly budget. See, if you can comfortably afford the repayment tenure you are opting for, whether it is a shorter tenure or longer tenure.
• Understand the risks of missing EMIs: The focus should be on understanding the complications associated with personal loans. All loans come with high interest rates, processing fees, and the possibility of legal complications if the terms and conditions of personal loan repayment are not met.
• Total interest burden: Before applying, it is essential to clearly understand the total borrowing amount, along with the final interest rate, so that a fair idea of the total outgo over the entire loan duration can be visualised. This will make it easier for borrowers to get a fair idea of the entire borrowing.
• Credit profile and income stability: A strong credit score, i.e., any score over 750, has the potential to help borrowers unlock flexible and longer repayment tenures and easier interest rates, in comparison with applicants with poor credit profiles.
• Prepayment or part‑payment options: You should also investigate and discuss with your lending institution whether they allow prepayments or part payments, along with the applicable terms, charges and conditions.
• Understanding your financial goals and long-term objectives: Finally, one should also align the loan repayment tenure with their long-term plans and objectives. For this, you must prioritise whether you wish you pay off quickly or focus on conserving cash for now.

The tenure of a personal loan is not just a technical detail. It has the potential to shape how much a borrower can afford to pay each month to repay the borrowing. Furthermore, it has the potential to determine the funds spent by the borrower holistically upon the loan's culmination. That is why borrowers should opt for a repayment tenure that balances their repayment potential with their financial goals.

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