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A long term personal loan allows the borrower to opt for longer loan tenure such as 3 to 7 years. A long tenure personal loan runs for a couple of years. The EMI amount of the loan will be lesser than short term loans. There are many benefits of choosing a long term personal loan but at the same time, the cons should not be overlooked. Here are the pros and cons of long term personal loans.
When you opt for longer loan tenure, it will help you to get a better loan amount. A longer tenure minimises the EMI amount so the repayment becomes easy. Before sanctioning any kind of loan, lenders do check if the borrower is able to pay off the loan easily. In the cases of low EMI amount, the lenders easily sanction a higher loan amount as the chances of defaulting become less.
As mentioned above, longer tenures minimise the EMI amount, it becomes easy for the borrower to pay off the loan. One can easily pay off the loan without making huge alterations in the monthly budget. Before applying for a personal loan check your EMI amount in personal loan EMI calculator.
If you want to use your personal loan to improve your credit score, then a long term personal loan works best for you. The improvement of credit score needs a quite long span of time, so taking a long term personal loan and serving the loan with discipline makes your credit score improve.
A longer loan makes you eligible for a top-up loan as long as the tenure runs. A personal loan borrower becomes eligible for top-up loans after paying EMI of the first 12 months. So if your loan term is for 5 years, you can become eligible for a top-up loan for 4 years. But in case of short tenure loans, you lose the opportunity.
Interest rate is calculated on reducing balance principal. Due to loan amortization method during initial months EMI’s major portion goes towards interest than principal. This means that if you want top-up or prepay your loan than your principal amount will not be reduced significantly and you may end up paying higher interest rates
A long term personal loan will keep you under the debt for a long time frame. Being under debt for a long time may make you feel the debt-burdened. You will always need to be disciplined with your financial responsibilities for a long span of time.
The loan eligibility of a person is calculated on the repayment capacity. As long as you service a loan, your loan eligibility for new loans is lessened as you have fixed obligation of your ongoing loan. The lenders do check that the total payable of every month should not be more than 50% of your net monthly income.
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