In a loan EMI and tenure of loan are linked to each other. The EMI and tenure of loan should be decided very carefully calculating all you’re spending, and any other costs which can add to your expenditure in the future.
The loan amount is sanctioned for a particular duration that is known as tenure of a loan. A loan sanctioned for a period of 3-4 years is known as short tenure loan. If a loan is sanctioned for 15-years it is known as long tenure loan.
The outflow of EMI will be in accordance to loan tenure. If a loan of Rs 10 lakh is sanctioned at a 10 per cent rate of interest then for tenure of four years, the EMI outflow will be Rs 25,300.
In case of longer tenure of 20 years, the EMI outflow will be around Rs 9,600. If it is difficult for a borrower to make high EMI repayments, then he should increase the loan tenure. The longer the loan tenure the EMI repayment amount will be less.
But the interest rate of the loan will be low in case of short tenure loans.
In case you have any other source of income or expect to add to your income in few months then it is better to opt for a short tenure loan. Because if considering your present income you decide for long tenure loans and later on your income increases and want to pay back your EMIs faster then bank will charge prepayment penalties for this.
In case your retirement is near then go for short tenure loan. After retirement there will not be a regular income due to which you can face difficulty in repaying the loan.
If you have just taken up a job then you can take a long tenure loan but you will not be able to change a job easily.
Generally a borrower opts for longer tenure if he has taken a huge loan amount and this is better option, otherwise repayment of EMI will be huge which is difficult to manage.
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