Pros and Cons Of Long-Term Personal Loans

You do not need to specify a particular purpose to your lender while applying for a personal loan. This is why a personal loan is a feasible option to meet all kinds of expenses. Depending on the amount and tenure, personal loans are of two types. When the tenure and the loan amount is small, it is known as a short-term personal loan. On the other hand, when the tenure and the loan amount is large, it is called a long-term personal loan. Both the types are unsecured loans, and thus, they don't require any collateral. However, the latter provides you with an appealing benefit of low EMI (Equated Monthly Instalment) rates which is why borrowers typically apply for it. But before making such a consequential decision, you should be well acquainted about the pros and cons of a long-term personal loan.

1. Lower EMI rates:

2. Appropriate for high amount loans:

3. Builds credit score:

4. Top-up loan eligibility:

1. When you apply for a loan with a long tenure, the value of your EMIs decrease. Consequently, the stress on your monthly budget reduces, which helps you to repay your loan without hassles.Lenders always check your credit score before sanctioning you a loan. As low EMI rates of the loan make it easier for the borrower to settle the debt, lenders are more willing to grant loans of large amounts. The probability of non-remittance is quite low in long-term loans.Developing a good credit score needs a long stretch of time and punctuality. So if you are paying your monthly EMIs without delay, then a long term loan can help you improve your credit score.Top-up loans are loans that you can apply for in addition to your existing personal loan. Once you have paid the EMIs of the first 12 months, you can apply for a top-up loan for 4 years.

1. Higher interest:

2. More debt-ridden years:

3. Less eligible for another loan:

1. The rate of compound interest increases with your tenure. It is much higher in a long-term loan than a short one. As a result, you may end up paying a considerably higher amount than you borrowed.A stretched out tenure will keep you under financial stress for a longer period. You will need to manage and maintain your monthly budget to pay your EMI for a greater number of years as compared to a short-term personal loan.According to lenders, if you are already under debt, your capacity of repaying another loan decreases. This makes you less eligible for a new loan. Therefore, a longer tenure reduces your chances of availing another loan until you clear your existing debt which could take 3 to 7 years depending on your loan tenure.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.