Financial emergencies can hit you any time. No matter how financially stable you might be, life can throw you surprises, good and bad both, and you may find yourself suddenly in need of cash, either for celebratory purposes or meet some urgent expenses. Personal loans prove to be quite a flexible option at such times.
You can apply for a long-term personal loan to meet your different cash requirements like medical, wedding, higher education and others. However, opting for long term personal loan has its own advantages and disadvantages and you must understand them well before applying for one. Here’s a glance at pros and cons of a long-term personal loan:
Benefits of a Long-Term Personal Loan:
One of the biggest benefits of a long -term loan is your equated monthly instalments, i.e., EMIs are significantly low. Although, EMI amount may also depend on the principal amount you are borrowing, but when the tenure of your loan is longer, it automatically reduces the monthly instalments. In such cases, you pay off interest part in the initial period and thereafter the principal amount in the later period. It is always better to get an estimated EMI amount before you apply for a long-term personal loan.
Build Your Credit Score
A long-term loan is availed when the requirement of funds is higher; and hence the tenure is longer. Serving your loan for a longer period helps you build your credit history. Your timely payments enhance your credit score and increases your creditworthiness.
Avail Top-Up Loans
This is another advantage of serving a long-term personal loan. Once you have completed paying off your personal loan for 12 months, you become eligible for a top-up loan too. Although, you need to keep your EMI commitments in order without any default. Plus, this benefit comes with longer period loans only.
Drawbacks of a Long-Term Personal Loan:
Reduces Your Eligibility for New Loans
Loans are approved on the basis of repayment capacity of the borrower. If you have already availed a loan and serving it for a longer period, it implies that it would be financially strenuous on you to serve another loan. If your payables are more than 50% of your income, then lenders are likely to reject your loan application.
You End Up Paying More Interest (Higher APR)
Opting for a long-term personal loan means you will be paying interest for a longer period, In many cases you may end up paying equivalent to or more than the principal amount, though it depends on the amount you borrow and the tenure. Increased interest directly impacts your APR, which is cost of borrowing.
Longer Debt Period
Serving a long-term loan also means making a financial commitment for a longer period and bearing the debt burden for so many years. It demands a disciplined approach towards your finances and limits your freedom of spending too.
Whether a long-term personal loan makes sense to you really depends on your purpose of loan and your capacity to repay. It’s best you do your homework and then apply. Check out about personal loans on MYFI.