28 DECEMBER, 2021

Personal loans have become a go-to option to fund your various needs. It does not have end-use and so can be used for multiple purposes. The ease of availability and quick disbursal add to its benefit, making it a preferred option whenever someone needs funds. However, as it is quickly approved, often people end up miscalculating things and avail a wrong tenure.

You know that your choice of tenure can affect your EMI amount. Typically, a personal loan is offered for 1 to 5 years. The longer your tenure, the lower your EMI and vice versa. However, a longer tenure means you spend more time under the debt. Lenders allow you to choose the tenure as per your financial comfort. Unless you know which one is better, short tenure or long tenure, it could be challenging to make the right choice. For better understanding, go through the details below.

What Is a Short-term Personal Loan?

  • Short personal loans are usually for 12 months or one year.
  • Usually, lending a personal loan for a short period is less risky for the lenders as typically; there is more risk of default over a longer tenure.
  • It is comparatively easier to get short-term personal loans and, often lenders sanction such loans in a single working day.
  • Moreover, experts believe that you can get attractive personal loan interest rates on short tenure because lenders evaluate your financial stability and income while offering loans. It is highly unlikely that your financial status will change dramatically, affecting your repayment capacity within a year. Therefore, if you have a steady financial profile, you can expect a lower interest rate in the short tenure.
  • While your short-term loan is disbursed quickly, you can expect to get the loan with minimum documentation.

Long-term Personal Loan

  • Long-term personal loans can be taken for a higher loan amount so that you can get enough time to repay the loan.
  • Usually, the interest rate for such loans is higher due to longer repayment duration and higher amounts. Experts suggest using an EMI calculator to check affordability and suitable EMI before availing one.
  • While a long-term personal loan means you end up paying more on interest rates, it helps space out instalments. You can comfortably pay over a longer duration reducing the chances of default.
  • With a long-term personal loan, you can boost your credit score. Repaying the loan over a longer tenure would reflect that you are diligent and have financial discipline. It can therefore help you show a creditworthy person and improve your credit score.

The best way to choose between a short and long tenure is to assess your finances and needs. If you can pay a higher EMI comfortably, you can opt for a short tenure, and save on interest costs. However, if you have other commitments and want time to repay, you can opt for a longer tenure. Whatever tenure you choose, ensure that you check your affordability and eligibility before you apply for an instant personal loan.


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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.