® 
The best reason to choose a longer repayment term on your personal loan is to get the lowest possible EMI amount. This will save you on personal loan interest charges over the life of the loan, and give you a better chance at pre-closing the loan sooner.
Personal loans are an excellent choice for borrowers seeking faster loan disbursement, no collateral/margin requirement, no restrictions on end-use of loan proceeds, and minimal documentation. Most banks and NBFCs provide personal loans with repayment terms of up to 5 years, with some lenders offering repayment terms of up to 7 years. SBI, PNB, and Tata Capital are among the lenders that provide personal loans with terms of more than five years. Government employees can get personal loans from HDFC Bank for up to 6 years.
There are many factors to consider when deciding whether or not to take on a longer repayment term. Length of repayment, interest rates, and your own financial stability all need to be considered.
Here are a few reasons to consider a longer repayment term on your personal loan:
1. Lower EMI Outflow
By making the monthly installments lower and also extending the tenure, you are able to save more money every month. This will also make your EMI affordable over the long term. Once your finances have stabilized, you can use the surplus to pre-close the loan faster. Since the interest portion in your EMI would have been lower, your overall interest burden will also be lower when you pay off the loan in a shorter time.
2. Option To Choose A Higher Loan Amount
Depending on your debt to income ratio, a longer repayment period enables you to borrow a larger amount of money. If you have a higher income, you could consider a loan amount that is higher than you might normally qualify for in order to optimize your EMI. This will maximize your monthly savings since the EMI will be lower, and you will be able to close your loan sooner.
When approving a personal loan, the majority of financial institutions prefer a debt-to-income ratio of 35 to 40%. In other words, your monthly debt payments, past-due EMIs, and current EMI should be between 35 and 40 percent of your monthly income. Your DTI ratio can be reduced by choosing a longer loan term because it increases your ability to make payments. enabling you to take out larger loans.
3. Higher Chances Of Pre-Paying Your Loan
By extending the loan term, you have a higher chance of prepaying the loan before it reaches the advanced stages of repayment. A longer payback period helps you build savings, allowing you to pay off more of your loan before it’s due.
Most personal loans have a lock-in period after which you can prepay a portion of the balance. As a result, the loan amount will be lower for the remaining term, and you can conveniently pay it back with lower EMIs. But the majority of lenders charge a prepayment fee. Therefore, you should think about these fees before paying off your personal loan early.
4. Take Care Of Other Expenses Comfortably
When you pay a lower EMI amount, you free-up cash for other imminent expenses of your family or business. This will help you manage your expenses better and increase your monthly savings.
This is important for a better debt management plan. We have to understand that this personal loan may not be your only obligation; you could have a home loan, car loan or other expenses to meet every month. Defaulting on any of these loans will result in high interest amount accrual and other charges. This is how many borrowers fall into a debt trap. Therefore, choosing a longer repayment tenure allows you to spread your payments over other debts and expenses, without affecting your monthly cash flow.
5. Helps Improve Your Credit Score
When you pay the EMIs on time, your repayment history looks good, adding a few points on your credit score. This will help you get a better deal on other loans in the future.
Are There Any Drawbacks To Choosing A Longer Repayment Term On My Personal Loan?
Yes, there could be a few.
1. High interest burden - When you take a longer repayment term, you have to pay more interest for a longer period, resulting in a high interest burden. If you don't prepay your loan, you may end up paying more interest than the original loan amount.
2. Affects your chances of getting other loans - Since the loan has locked your credit limit for a prolonged period, it affects your chances of getting other loans until this loan is totally paid off.
3. Affects your credit utilization - A long term loan on your credit history blocks the overall credit utilization ratio on your credit report, which will have some effect on your credit score. If you apply for other loans or credit cards along with your personal loan, expect your credit score to drop a few points.
Conclusion
Deciding the repayment term of your personal loan is crucial for a healthy financial future. By choosing a longer repayment tenure, you can spread your payments over other debts and expenses, without affecting your monthly cash flow. Additionally, when you pay a lower EMI amount, you free-up cash for other imminent expenses of your family or business. This will help you manage your expenses better and increase your monthly savings.
FAQs of Benefits Of Choosing A Longer Repayment On Your Personal Loan
1. What is the typical repayment term of personal loans?
Personal loans are usually offered for a period of 60 months, while some lenders offer up to 84 months.
2. Is my interest rate determined based on the repayment term?
No, your interest will be the same irrespective of your repayment term. But with a longer repayment term, you will pay interest for a longer period.
3. How can a longer repayment term on my personal loan affect my credit score?
With a longer repayment term, there are less chances of default so your credit score is not affected.
4. Can I pre-close my personal loan?
Yes, lenders allow you to pre-close your personal loan after the payment of 12 EMIs.
5. Is there an option to make partial prepayment on my personal loan?
No, personal loans don't have the option for partial prepayments.
