Pros and Cons of Long Term Personal Loan | AU Small Finance Bank
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Pros and Cons of Long-Term Personal Loan

    To satisfy your every need big or small – a personal loan is there for when you want the latest smartphone or need a long-term loan for bigger things like renovating your house, meeting medical expenses, etc.

    Personal loans can range from a few thousand rupees to lakhs. The higher you go, the higher will be your EMI. But you can reduce your EMI by spreading it over a number of years. Now, there are pros and cons to making your loan a long one. Let’s take a look.

    Advantage of Long-term personal loan

    • If you take a long tenure, say 5 years, then you reduce the EMI you have to pay every month. So, this way you can take a personal loan even if you can afford to pay only a small amount.
    • For example, if you take a loan of Rs.2 lakh for 1 year at 14% p.a., your EMI will be Rs.17,957. But if you extend this to 5 years, then you only need to pay Rs.4,654 every month.
    • The financial burden is lesser. You can fit the EMI into your monthly budget easily and not worry about a big chunk of your salary going towards the loan.
    • Lastly, if you’re not able to meet the income eligibility, asking for a longer tenure might help. You will need to pay a lower EMI and therefore the bank will know you can afford it.

    Disadvantage of long-term personal loan

    • When you choose a longer term, you must know that you will be paying interest for the same amount of time. So, by choosing a long term, your interest rate might remain the same, but you increase the total cost of your loan.
    • Taking the same example, even though you pay Rs. 17,957 every month for 1 year, you only pay Rs. 15,489 in interest to the bank. So, you take Rs.2 lakh and repay Rs. 2,15,489.
    • But if you select 5 years, though you pay only Rs. 4,654 per month, the interest cost is Rs. 79,219. So, you take Rs.2 lakh but repay Rs. 2,79,219.
    • Do you see how much more interest you have to pay? So, choose this option only if you really can’t afford to pay a high EMI. If you can afford it, it’s best to opt for a short-term loan and save on interest.
    • Apart from this, the burden of the loan will be on your shoulders for many years, which might ultimately take a toll on you.

    So, before choosing a long tenure, take these points into consideration. There is no rule, it is up to you to decide which would be best for you.

    Calculate personal loan using our personal loan calculator online.

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