How to Get a Long-Term Personal Loan

Sometimes, you may not be able to pay off your personal loan in one or two years. Maybe the EMIs for short-term loans are too high, or you don’t have enough back-up funds or income to pay off the loan soon. You might want a larger loan amount, or you might want to show a long-term loan on your account for Income Tax or other personal reasons. Whatever the reason, long-term loans are easy on the pocket and trouble-free if you fulfill certain basic borrowing conditions.

Advantages of a long-term loan

In India, the maximum tenure for which you can get a personal loan is 5 years. Extending your personal loan to 3 years or more is advantageous in terms of EMIs and obtaining higher loan amounts. The longer your repayment tenure, the more the amount you could borrow. Of course it also depends on your monthly income and the bank’s discretion.

If your income is Rs. 50,000 and you can afford to keep aside around one-sixth of that (Rs. 8350) for the EMI, you will be able to get a personal loan of Rs. 3.5 lakh at 15.25 percent interest. For the same amount and interest rate, a short-term loan of 1 year will make your EMI as high as Rs. 17,000.

Preparing for a long-term loan

To get a long-term personal loan, you need to be prepared with certain documents and a plan to repay the loan regularly. Let us look at the preparations you need to make and the criteria you need to meet in order to secure a long-term personal loan.

●       Ensure a good credit score: A high credit score is important for you to be able to win the trust of the bank or financial institution. That will convince your lender that you will not default on payments. If you have failed to make any repayment or have made too many later repayments during previous loans or credit card bills, your credit score will be low. A CIBIL rating of 750 or above is considered a good credit score and makes you eligible for a loan, if all your documents are in order.

●       Provide all necessary documents: Keep all the documents requested by the bank – proof of identity and address, salary slips, etc.  – handy. Fill out the loan application truthfully and in its entirety. This will ensure that your loan request is not rejected.

●       Assess interest rates: Check the interest rates offered by various banks before obtaining a long-term personal loan. At a higher interest rate, you will end up paying more money as interest if the period of loan is longer. If you are taking a loan of Rs. 3 lakh at 18 percent interest for five years, you end up paying around Rs. 1.57 lakh as interest during the tenure of the loan. But if the interest rate is 12 percent, your interest payments at the end of 5 years will be Rs. 1 lakh only.

●       Choose a legitimate lender: Always take loans from trusted financial institutions, whether they are nationalized, cooperative or private banks, or other recognized financiers. You could be cheated by unrecognized lenders through hidden charges, exorbitant interest rates or illegal transactions.

●       Check for penalties and hidden charges: Personal loans often come with hidden charges, loan booking or processing fees, and penalties for late payments of EMIs. Ensure that you are not being taken in by glib loan executives, by checking all the fees and deductions made from the loan at the time of disbursement. You could cross-check through EMI calculators online whether the monthly installments mandated by the lender are accurate with regard to the interest and processing fees.

●       Ensure regular repayment: Choose a loan amount that you will be able to repay regularly. You need to remember that defaulting on your loan or making too many late EMI payments will reduce your credit rating. In this case, you are more likely to be rejected for another loan or credit card the next time you need one.

●       Avoid taking multiple loans: If you are taking a long-term loan, it is advisable to avoid taking multiple loans as that affects both your repayment capability and your credit score. The more loans you have in your name, the more difficult it would be to be regular in paying back each of their EMIs.

By making an informed choice regarding interest rates and other banking fees, you can choose the loan plans most suitable to you. A long-term personal loan will help keep your EMIs low and make repayments more affordable. This will keep your finances in order and you can lead a tension-free life.