What is Personal Loan Tenure?
Personal loan tenure is the repayment period during which the borrower pays back the loan amount in fixed monthly installments. Lenders, including banks, NBFCs and digital apps, offer loans with tenures that can range from 6 months to 5 years.
It is important to select the right loan tenure as per your repayment capability. When you select a long loan tenure, the EMI cost goes down, but the overall loan cost you end up paying increases. On the flipside, when you select a short tenure, the EMI cost is higher, but you end up clearing the loan earlier. You can use an online EMI calculator to compare EMI for different lenders for different tenures when deciding on a loan.
How Does Personal Loan Tenure Impact Your EMI?
A critical aspect of EMI is choosing the right loan tenure. The tenure you choose directly impacts the EMI you pay. Loan repayment is inversely proportional to the EMI amount of your loan. If you opt for a long tenure, you pay less EMI amount, but your overall loan cost is higher. On the other hand, if you choose a short loan tenure, you pay a higher EMI, but you end up clearing the loan early. And thus, save on your cost.
For instance, Shyam takes a personal loan of 2 lakh for home renovation. If he earns a regular income and manages EMI payments, without sacrificing essentials, he should opt for a short tenure. However, if he is short on funds, a longer tenure will give him time to repay the loan comfortably, even though the loan costs increase.
Tenure | Monthly EMI(₹) | Total Interest Paid(₹) |
12 months | 18,050 | 16,620 |
5 years | 4,760 | 85,480 |
Minimum vs Maximum Tenure for Personal Loans in India
Loan tenure varies depending on the lender. Most banks and NBFCs offer loans ranging from 6 months to 5 years.
The minimum tenure for personal loan in India ranges from 3 to 6 months. Digital apps like Zype, offer minimum tenure, starting at 6 months.
The maximum tenure can range from 5 to 7 years. Banks like Axis Bank, Bank of India offer this tenure.
Factor | Minimum Tenure (3- 6 months) | Maximum Tenure (5-7 years) |
Common Tenure | 3, 6, or 12 months | 60 – 84 months. Some cases have tenure of 96 months. |
Monthly EMI | High EMI. The amount is high but loan can be repaid in a shot span. | Lower EMI. EMI is more manageable but you need to pay foe a longer time |
Total Interest Paid | Significantly lower overall interest | Much higher total interest over the life of loan |
Borrower Profile | This option is best for individuals with high income and a good credit profile. | This option works for individuals with steady income who have lower EMI loan to manage along with their other expenses. |
Pros | The overall loan cost is lower and you get debt free earlier. | Offers more flexibility to manage other expenses. Ideal for individuals with lesser income who have a financial pinch. |
Cons | High EMI amount. Leaves less room for other expenses as a higher amount goes towards the EMI. | Total loan cost is much higher. May leave lesser room for a new loan or other large purchases. |
Also Read: Know the Maximum and Minimum Tenure for Personal Loan
Factors That Decide Your Personal Loan Tenure Eligibility
When taking a loan, lenders typically look at a lot of factors to determine personal loan tenure eligibility. Based on these key factors, lenders can offer you the tenure that lowers their risk.
These are the factors that determine whether you can get a short tenure or a long one:
- Credit Score: A high credit score establishes creditworthiness and assures of your reliability as a borrower. A low credit score may lead to short tenure offered at a high interest rate.
- Monthly Income: A stable employment status and monthly income increases chances of getting a loan at better rates and tenure. Higher income levels give flexibility in choosing tenure, while lower income may force lenders to cap the loan at a longer tenure with smaller EMIs.
- Age: If you are a young borrower, you have the choice to opt for longer tenure, as you have many earning years ahead of you, to repay the loan easily. For older borrowers, it may be difficult to get a loan at a longer tenure, as they may be closer to retirement. This can impact the loan tenure offered.
- Loan Amount: Smaller loans (₹50,000–₹2,00,000) often come with shorter tenures, while larger loans may qualify for the maximum tenure to make repayments manageable.
- Repayment Capacity: Lenders typically check any existing debts, income and other financial obligations one may have. If there are a lot of financial obligations, that affects the tenure.
- Lender Terms &Policies: Digital NBFCs and instant loan apps often provide flexible options, from very short tenures (3–6 months) to long ones (up to 5–6 years), depending on customer profiles.
Advantages and Disadvantages of Choosing a Long Tenure Personal Loan
Whenever you take a loan it is imperative to weigh the pros and cons. If you plan to opt for a loan tenure personal loan, consider these factors, before you finalise on it.
Advantages of a Long Tenure Personal Loan
- Better Cash Flow Management: The biggest advantage is having a smaller EMI to manage monthly. This allows you to take care of other expenses, without feeling a cash pinch.
- Higher Loan Amount: The borrower can get a large loan amount as the tenure is longer.This allows the borrower to repay comfortably.
- Reduced Defaults: As the EMI is lower, there are higher chances of regular repayment. This fairly decreases loan defaults and late payments.
- Credit Score: Timely repayments build credit score and leave a reliable credit history.
- Flexibility with Prepayment: If the lender allows prepayments, you can repay loan earlier whenever your income increases to shorten the tenure as well. Check for pre-payment terms, before you sign for the loan.
Disadvantages of a Long Tenure Personal Loan
- Higher Total Interest: The overall cost of the loan is significantly higher. You end up spying more overtime.
- Prolonged Debt: A debt for 5 (or more) years can feel restrictive. There is less space for any emergency expenses as a large chunk of your income goes to paying the EMI.
- Stricter Lender Requirements: Longer tenures often require strong credit history and stable income. Many lenders would also prefer younger borrowers, who have a long time left to earn regular income.This may pose a restriction for the older borrowers, nearing retirement.
- Prepayment Penalties: Some lenders charge fees for early closure. So you may have to shell out more money to settle the loan early.
How to Choose the Right Personal Loan Tenure for You
It is crucial to choose the right personal loan tenure that suits you. The right tenure allows you to borrow your required loan amount without restricting your other expenses. Check these steps to identify the right loan tenure
Step 1: Factor Your Monthly Income
Calculate your monthly income and how much can you allocate to repayment. Ideally, your EMI amount should be less that 30-40% of your monthly income. Utilise a loan EMI calculator to arrive at a manageable EMI amount and tenure.
Step 2: Consider Your Expense Outlook
Evaluate existing financial expenses like house rent, school/college fees, existing debts or any other expenses. If you expect expenses to rise in the near future, opting for a longer tenure ensures EMIs remain manageable. On the other hand, opt for a short tenure, if you have a high income with less expenses.
Step 3: Factor in Future Financial Goals
Ask yourself: will this loan restrict me from buying a house? Do I need more money to fund a wedding? Can I save for retirement even with an EMI? Depending on your future goals, decide on the tenure.
Step 4: Check Interest Affordability
Loan interest is inversely related to the loan tenure. This opting for a longer tenure leads to lower EMI but overall loan cost increases. On the flipside, a short tenure leads to higher EMI but lowers the total cost. Check which option is more affordable based on you current financial situation.
Step 5: Understand Risk Tolerance
If your income is stable, you can safely take on higher EMIs with shorter tenures. But if your job or business income is uncertain, a longer tenure reduces the risk of missed payments.
Step 6: Seek Expert Guidance
Consult with your lender or financial advisor. A loan expert ensures you balance affordability and cost-effectiveness.
The right personal loan aligning with your income, expenses, goals, and risk profile.
Impact of Personal Loan Tenure on Total Interest Payable: A Detailed Look
A personal loan tenure directly impacts your repayment time. While the choice of tenure directly affects your monthly EMIs, its bigger impact lies in the total interest payable over time. A shorter tenure means higher EMIs but lower overall interest, while a personal loan with long tenure significantly increases your cost of borrowing.
Thus, the tenure you choose, decides if you save thousands or end up paying much more in interest. Let us look at the table to understand this better. We consider a 3 loan at 18% for different loan tenures
Tenure | Monthly EMI | Total Payment | Total Interest Paid |
1 years (12 months) | ₹27,504 | ₹3,30,048 | ₹30,048 |
2 years (24 months) | ₹14,424 | ₹3,46,176 | ₹46,176 |
5 years (60 months) | ₹6,977 | ₹4,18,620 | ₹1,18,620 |
As you can understand from the table, while a longer tenure decreases EMI amount, it ends up increasing the total cost of the loan. A short loan had a high EMI amount but the total loan cost and savings on interest was much more.
Frequently Asked Questions
Most lenders in India cap personal loan tenure at 5 years. A few NBFCs may extend up to 7 years in certain cases. With Zype, you can choose flexible EMIs up to 18 months, designed for quicker repayment and lower long-term cost.
Yes. A longer tenure reduces the monthly EMI since the repayment is spread over more months. However, it also means you pay more total interest.
No, it is not possible to change the tenure once it is disbursed. Some lenders, on request, may offer restructuring or refinancing. Check with the lenders for more information.
If your EMIs look too high for your income, lenders may stretch the tenure to make them affordable. A reasonable tenure improves approval chances.
Prepayment penalties depends upon lender. Some lenders do charge pre-payment penalties while other do not charge any penalty. Check lender’s prepayment terms before you sign the loan.
Loan tenure has a direct impact on interest rate. A shorter loan tenure means higher EMIs with a lower total interest, while a longer tenure reduces EMIs but increases the overall cost.
