InvestorQ : I am planning to take a personal loan, but I don’t know how to select the right tenure. Please help.
Sadaf Khan made post

I am planning to take a personal loan, but I don’t know how to select the right tenure. Please help.

Gauravi Patel answered.
3 years ago

Taking any loan is a big decision for every individual as it impacts our financials and financial situation in varied ways. There are a number of choices you have to make and choosing your loan tenure is one among the most important ones.

So here are few ways that you can select the loan tenure that’s right for you:

#1 Understand your monthly finances

Understanding your finances, especially on a per month basis, is one of the most critical factor that will help you choose an appropriate loan tenure. Jot down all your monthly commitments and cross check it against the monthly income to figure what the residual income is. Depending on what amount is left, you can choose a tenure that works well within your financial situation. Your loan amount and tenure should be such that it doesn’t burden you with fears of repayment or default. You have, in all likelihood, taken a loan to improve your life in one way or another. So, there’s no point in taking a loan which will make you suffer every day until you have repaid the loan.

#2 Gauge your future financial prospects

If you are employed somewhere and are due for a hike in the near future, then you know that you will get a higher disposable income, thereby helping you figure a higher EMI every month. By paying off higher EMIs, you will not only pay off your loan early, but you will also reduce the overall interest you end up paying.

However, you must bear in mind that before you actually receive a hike, these calculations will be all in your head. Hence, you might have to take on some extra burden until extra money starts flowing in to your account.

#3 Keep in mind your existing liabilities

It is prudent that your take your various monetary commitments in consideration to choose a loan tenure. Thus, all your expenditure, such as other loans, credit card payments, house rent, tuition fees, club memberships, etc. need to be well considered.

Ensure you choose a tenure that helps you balance all your obligations without facing any crunch of any sort.

#4 Calculate your interest charges

Think loans and the next logical thought that comes in anyone’s head is its interest rate. Hence, it is extremely important that you understand the charges involved in the loan-taking process.

It is advised that you use a combination of various tenure options with the proposed loan amount to calculate your interest amount. A loan with a longer term means higher charges. So, if you don’t want to end up taking a loan which you keep paying for many years, you might want to increase your EMI amount.