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Long-Term Loans
For most people, the major milestones in life like higher education, marriage, starting a business or buying a car can be achieved only with the help of some additional financial assistance. Long-term loans help in seeing through these moments that are cherished for a lifetime. The right type of loan with comfortable payment terms can make financial obligations an easy affair.
Long-term loans are typically defined as loans that have a longer tenure exceeding one year and can go up to 30 years. Different types of loans like education loans, car loans, home loans and certain kind of personal loans fall into this category. Because of the longer tenure, the interest rates are lower and many terms & conditions tend to be relaxed as compared to short term or quick loans. The purpose of the loan determines the general terms under which it would be made available to the applicant.All banks and financial institutions offer different types of loans to suit varying needs of the common man. Unlike yesteryears where taking a loan was considered a taboo, today, it is one of the most accessible and viable financial assistances available. Without blocking the liquidity in your financial portfolio, an appropriate loan can make life easier and milestones achievable without stress.
Purpose of Long-Term Loans
Long-term loans help in meeting major financial requirements such as marriage, building a house or setting up a business. It has become one of the most popular financial instruments as banks offer various options that help you choose the correct loan that suits your financial requirement. A snapshot of various long-term loans has been mentioned below:
This type of loan is taken to fund specific courses like engineering or medical and also for studying abroad. The loan tenure varies between 3 and 30 years. Depending on the type of course being pursued and the location, the bank will offer suitable terms and conditions. The loan amount will also be depending on the tuition fee and other expenses that could be incurred during the course of education. Many a time, the applicant’s children graduate from the course and start repaying the EMIs after they land up with an employment opportunity.
Car Loan :
One of the easiest loans to get, a car loan is the most popular amongst all financial instruments. Banks have made the process of applying and receiving a car loan without any hassles. Car loans are the best way to purchase a new car or a used car as it offers easy and immediate finance to the purchaser. The loan tenure varies from 2 to 7 years. Because of stiff competition in the market, the rate of interest can be negotiated with your preferred bank on the basis of your income details and other liabilities. There is also an option for pre-closure of the loan however, some charges could be applicable.Home Loan :
Home loans are probably the longest loans available in the market due to its tenure and amount borrowed. A home loan tenure usually varies between 3 and 30 years. The interest rate and the amount taken depends on the credit history of the applicant and the income source. This type of loan is secured loan and a collateral is required by the bank. The applicants have an option to choose between fixed or floating rate of interest. One can also avail tax exemption if you are repaying a home loan.Personal Loans :
This type of loan has a long tenure of more than 3 years and can have selective cap on the principal amount being borrowed. The rate of interest is on the higher side as this loan is an unsecured loan. The bank does not require a collateral for a personal loan. Hence, the chances of default payment are high. A personal loan helps in meeting a financial contingency or an emergency when funds are required immediately. One can also apply for this loan online with less paperwork.
Features of Long-Term Loans
Long-term loans are planned borrowings and repayment is scheduled over a long period of time. Some of the main features of long-term loans have been mentioned below:
- High loan amount :
- Collaterals :
- EMIs :
- Attractive rate of interest :
- Tax Benefit :
Long-term loans offer higher principal amount to be borrowed as against a quick loan or a short-term loan. Depending on one’s financial capabilities, the bank will be able to offer higher loan amounts.
Long-term loans are offered only if a collateral has been shared. This makes the loan secure and reduces the risk of defaulting by the applicant. In case, the borrower is not able to repay the loan, the bank can take over the asset that has been kept as collateral to close the loan.
One can repay the long-term loan by making Equated Monthly Instalments (EMIs) over an agreed period of time with the bank. The instalments are made up of two elements – principal amount and the interest. The EMIs can be paid through post-dated cheques or by giving the bank standing instructions to deduct the amount from the savings account on a monthly basis.
Due to the quantum of the loan and the longer tenure involved, the rate of interest tends to be lower than other types of loans. Stiff competition in the market also ensures lower interest rates being offered by the bank.
Some of the long-term loans have the benefit of tax exemption. Home loan is one such loan product which offers this benefit. A car loan does not have this benefit of tax exemption.
Eligibility Criteria
Different banks have set different eligibility criteria for long-term loans. Depending on the type of long-term being applied for, the general eligibility criteria is as follows:- Individual between the age of 21 and 60 years
- Salaried or Self-Employed
- Employees of public and private limited companies
- Should be a resident of India
- Minimum income requirement of Rs 15,000 per month in most cases
- Employees PSUs and central/state government
Benefits of Long-Term Loans
When you have a planned financial requirement, taking a long-term loan is a prudent option. Some of the benefits of taking a long-term loan has been listed below:
- Lower interest rate :
- Maintain liquidity :
- Flexibility :
- Tax Benefits :
- Online Application :
Due to the longer tenure and higher principal amount being borrowed, long-term loans offer competitive and lesser rate of interest. A collateral need to be attached to avail this loan, hence, it is a low-risk transaction for the bank.
As your larger need is being financed through a loan, the remaining finances can be utilized for meeting other obligations. Therefore, it eases out any financial burdens which otherwise would have been present.
The nature of long-term is such that it is mostly personalized from applicant to applicant. The tenure and interest rate can be negotiated with the bank if your documents and credit history are in order.
Most of the long-term loans can be used for tax exemption. This helps in saving money and utilizing it elsewhere.
If you are current customer of the bank that you are applying a loan for, it is possible to apply online and submit documents. This helps in easing out tedious paperwork and makes the entire process faster.
Interest Rates and Other Charges
Long-term loans offer lower rate of interest due to the amounts involved and the long tenure of repayment. The interest rate is usually dependent on the loan amount, tenure, income source and credit history of the individual. If the loan amount increases, the interest rate can be further negotiated downwards. The credit worthiness of the individual has a direct bearing on the interest rate. If the credit score is less, the interest rate will be on the higher side as the bank will have less confidence on the repaying capability of the individual.
In case of long-term loans, the interest rate can be either fixed or floating type. The interest rates hover between 8.90% and 12%, depending on the type of loan. One must check the interest rates with different banks before finally applying to a particular lender.
Banks levy some charges while processing a long-term loan. Some of the notable charges have been outlined below:
| Processing charge | Varies from Rs. 700 to Rs. 2500 |
| Prepayment charge | Varies from 2% to 6% of the outstanding principal |
| Stamp Duty | Actual |
| Overdue EMI Interest | Around 2% per month |
| Cheque swapping | Rs.500/- per instance |
| Legal and other incidental charges | Actual and non-refundable |
| Amortization schedule change | Rs.200/- |
*It is important to note there that the above-mentioned charges are indicative and will vary from lender to lender. You are advised to check with the lender directly at the time of loan application for updated details.
How to Apply for a Long-Term Loan
Long-term loans are popularly taken from banks and other financial institutions. Most banks today offer an online option to apply for loans. This reduces the processing time as well as reduces the paperwork.
Another option to apply for a loan is by directly visiting the nearest bank branch. One can consult the bank’s representative for loan details and submit required documents then and there.
Some banks offer “Call Back” option wherein you can dial the given number and a representative will return your call. After discussing your loan requirements, the bank sends a representative to your residence to collect the documents and have your loan processed.
A critical point to note here is the credit score check. Today, most banks assess your loan application on the basis of your credit score. If your score is on the lower side, it is wise to first pay-off the existing dues and increase your score to an acceptable level before applying for a loan. This will ensure that your loan application is not rejected.
Top Banks That Offer Long-Term Loans
All leading banks and financial institutions offer long-term loans to cater to the varying needs of people. Some of the banks that offer this type of loans are:
- Axis Bank
- HDFC Bank
- ICICI Bank
- State Bank of India
- Punjab National Bank
- Kotak Bank
- Bank of Baroda
- Indiabulls
- Citibank
- Tata Capital
FAQs- Long-Term Loans
1. What is an EMI?
Equated Monthly Instalments (EMIs) are equally divided amounts that are to be paid on a monthly basis towards repayment of a loan. This payment needs to be done over a fixed period of time till the outstanding loan is fully paid. EMIs begin one month after the loan is disbursed.
2. How can I repay the loan?
If you are an existing customer of the bank, you can leave a standing instruction with the bank to deduct the EMIs on a monthly basis towards the loan repayment through your savings bank account. Another option is to submit post-dated cheques. A third option is making payment through National Automated Clearing House mandates.
3. What is the amount that can be taken through long-term loan?
The loan amount is decided at the discretion of the bank on the basis of the details provided by the individual. Mainly, the amount of the loan depends on the regular income of the individual, creditworthiness and repayment capability.
4. What are the different types of long-term loans available?
Broadly, long-term loans include education loan, home loan, car loan, personal loan and small business loans.
5. What is pre-closure of loan?
If you are able to repay the entire loan amount before end of the loan tenure, it is called as pre-closure of loan. Some banks levy charges on pre-closure of loans. However, this helps you save money on interest that would be applicable on the EMIs.
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