Are Personal Loans Really Good for You?

Personal loans are one of the most versatile forms of credit on the market. In fact, as long as you don’t use it for speculative purposes, you can use it for anything at all as long as it is legal. In fact, most banks and lenders don’t even ask you what you’ll be doing with the loan. Great, is it not?

This means you can use personal loans for anything, ranging from home renovation, education, tuition fees, medical expenses, buying electronics, and much more! You can buy a home with it or fuel a business as well, but there are specialized loans which cater to those specially and offer more useful benefits.

The flexibility is not just in usage, but also in:

• Repayment plans
• Loan amount
• Tenure
  

 Additionally, there are more than 100 banks, financial products, and NBFCs waiting for you! Well, not exactly not waiting for you so liberally, but yes, you have a wide range of options.

In this article, we shall go through the various benefits and disadvantages of long term personal loans.

Benefits

• Loan amount: If you want a long term personal loan, which are those loans of more than 5 years, you can choose to take the maximum amount depending on your current debt-to-income ratio. Most lenders give loans of Rs. 40 lakhs for a term of 4 years. You can serve 7 years as well, depending on your eligibility. Long term personal loans enable you to borrow more than what is possible from short-term personal loans.
  
  
• The size of EMIs: It is a common knowledge that the longer your repayment term is, the less your EMIs become. This enables you to pursue your dreams without fearing about money shortages. However, remember that your interest rate increases in direct proportion to the loan term, and so you’ll be paying more anyway. Even if you can manage a lower interest rate, the loan’s overall cost shall be higher. Thus, tenure should only be extended if you are not able to repay in the short term.
  
  
• Foreclosure: Most personal loans come with a foreclosure cost. This can range till 4% of the outstanding loan principal. In case of long-term loans, this fees is considerably less, but only after you have paid 24 month’s EMI.
  
  
• Collateral: These are unsecured loans and thus there is no question of security or collateral. You get this loan based on age, debt to income ratio, age, and credit score. However, you can still pledge a collateral and thus get a lower interest rate and longer duration.
  
  
• It is good for your credit score: Paying EMIs and instalments of long term personal loans build up your credit score, and makes you a much more lucrative customer to future lenders.

The Disadvantages

1. Long term personal loans limit your credit eligibility: Think about your current debt to income ratio before going for a long-term personal loan. Because once you get a long term loan, you may not be able to get any other loans before repaying the current loan, which of course will take many years to repay. Besides, even if you can get other loans, it’ll be very stressful having to pay EMIs for them all.
   
   
2. Overall cost of loan rises: If you go for a longer tenure, you increase the loan’s overall cost.
   

If you are going to pick a long-term loan out of compulsion, we recommend you check out other options like home loan and education loans first. You’ll get more tax benefits from such loans.