Should I Choose a Long-Term or Short-Term Tenure?
When it comes to a personal loan, it comes in all forms such as short-term personal loans and long-term personal loan. Well, which simply means the short-term loans have tenures ranging from a few months to a couple of years, and long-term loans have tenure of three years or more. Both have their own set of benefits and this is the reason borrowers usually get confused about which tenure to choose. Talking about long-term personal loans, they help in building your credit score and ensure your EMIs are affordable. While on the other hand, taking a short-term personal loan means that you will need to pay less in terms of overall interest. However, if you can manage to pay your loan early with enough financial backup or savings in hand, it is advisable to go for a short-term personal loan as it eases your loan repayment burden with less interest outgo.
Short Term Personal Loan Means Less Interest Burden
Once you opt for a short-term personal loan, which means you need to repay the loan in a short- time-interval. And, with a shorter tenure, your interest burden will get reduced as you will repay the loan to the lender early. The more time you take to repay the loan, the more interest you pay to the lender, which means more burden on your shoulders. Though, your EMIs will be a bit heavy in such a case but it will give a big relief to your pocket in the long-run. And, if you can manage to repay your loan early with some savings or a good monthly income, opt for a short-term personal loan.
Long Term Personal Loan Keeps Your EMI Pocket-friendly
With long-term personal loans, a borrower can enjoy the benefit of pocket-friendly EMIs. Tenure and EMIs are directly proportional to each other.i.e.the longer tenure you have the affordable EMIs you have and vice-versa. With monthly installments becoming pocket-friendly, it is easy to repay the loan without feeling the burden. But the interest will keep on adding onto the principal amount thus you need to repay both to the lender, in case you choose a longer tenure option.
Below is a table showing the EMI Difference Between Short Term and Long Term Personal Loans
| Particulars | Short Term Loan | Long Term Loan |
| Interest Rate | 14.50% | 14.50% |
| Loan Amount | 6,00,000 | 6,00,000 |
| Tenure | 2 Years | 5 Years |
| EMI | 28,950 | 14,117 |
| Total Interest Amount | 94,792 | 2,47,018 |
| Total Amount (Principal + Interest) | 6,94,792 | 8,47,018 |
| Yearly Savings | Total Savings= Rs.1,52,226 (8,47,018-6,94,792) |
As you can see in the table above, with a total savings of Rs.1,52,226, it is advisable to choose short-term personal loan.
Quick Tip: You can further invest this amount in various saving schemes like mutual funds, NPC, shares, etc to help your money grow in the future.
Note: The load of EMI would be a bit heavy on your pocket. But you can save a big chunk of money in terms ofTotal Amount on your short-term personal loan.
Short Term Personal Loans Do Not Require Collateral
Though personal loan in itself is a collateral-free loan, which means a borrower doesn’t need to give security to the lender. But at times, in the case with a long-term personal loan, there are a few lenders who ask for security such as gold, investment or any other valuable asset. Thus, short-term personal loans are easy to avail without any collateral/security and can also be given instantly to the borrower.
Long Term Loan Helps to Build Credit Score
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 time span, so taking a long term personal loan and serving the loan with discipline makes your credit score improve.
Conclusion
If you have a low cibil score or want to enjoy pocket-friendly EMI, you can opt for a long-term personal loan. But if you can manage your monthly expenses well with high income and have extra savings, going for a short-term personal loan is advisable. With a short-term loan, you can also save a lot on your Interest portion which is not the case with a long term loan. Thus, you can further invest this saved amount in other savings schemes and instruments.