What is Tenure in a Personal Loan and How to Choose the Loan Tenure Smartly?

06 Apr 2022

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A personal loan is an unsecured type of a loan which means that you can borrow the funds without handing over any collateral. The borrowed money can be used for various purposes such as tackling an emergency, financing your business, or pursuing your educational goals. However, since you do not need to provide collateral to procure a personal loan, the interest rate charged on these loans is relatively higher when compared to other types of loans, such as home loans or student loans. Due to this, it is important to plan your finances before you apply for a personal loan . When planning your finances, you need to think carefully about the personal loan tenure that you choose.

If you are about to take a personal loan for the first time, you may not know what is tenure in loan jargon. If that’s the case, this article can help you out, Read on to understand what is loan tenure and how to choose the right tenure for your loan.

Tenure meaning in loan terminology

The tenure in your loan is the time period between the disbursal of your loan and the last EMI payment that you make. For example, if your personal loan was disbursed on 1st January 2022 and you repaid the debt in its entirety (made the last EMI payment) on the 1st of January 2025, your loan tenure is said to be of 3 years. The personal loan minimum tenure is around 2 years, while the personal loan maximum tenure is around 5 years. However, do keep in mind that the minimum and maximum tenure of the personal loan can vary from one lender to the other.

Now that we understand repayment tenure meaning, let’s look at how to choose the correct tenure.

How to choose the right personal loan tenure period?

Choosing the right tenure for your personal is quite important. To help you make the right choice, here are 4 tips on how to choose the personal loan tenure smartly.

• Consider your current financial obligations

The very first step in choosing the right personal loan tenure is to understand your monthly expenses and your monthly income. Subtract the summation of your monthly monetary commitments from your monthly income and understand the amount of money you can allocate for paying your personal loan EMI. While calculating your monthly expenses, do not forget to include the repayment amount of your existing debts such as credit card debts and other ongoing loans. It is also better to check your DTI or debt to income ratio. This is the ratio of your monthly debt repayments and your monthly expenses. If you do not have an urgent requirement of funds, it is advisable to only apply for a personal loan if your DTI is below 50%. For easier and error-free calculations, you can write down your monthly expenses, debts, and income on a piece of paper or make use of Google Sheets or Excel.

• Calculate the personal loan amount you require

Before you apply for a personal loan, finalise the loan amount you require. Your loan amount is directly proportional to your loan tenure. If you procure a loan of a higher amount, you may need more time to repay the capital along with the interest. Hence, as a rule of thumb, do not procure a personal loan for an amount that is more than what you require. To accurately estimate the loan amount required, you must first understand why you need the loan and how much money you would require for fulfilling your objective.

• Calculate your interest cost

To calculate the interest cost of your personal loan, you must first find out the interest rate charged by the lender. Once you know the interest rate charged by the lender, the next step is to calculate your total interest payout using different tenure options. For example, if you procure a personal loan of Rs 10 lakh at an interest rate of 12.5% for a period of 4 years (48 months), your interest payout would be Rs 2,75,840. However, if you take the same loan for 3 years (36 months), your interest cost would be Rs 2,04,331. Likewise, you can calculate your interest payout for different tenures and understand how much it would cost you to procure the debt. By doing this, you can select the right tenure for your loan.

• Make use of the personal EMI calculator

Manual calculations can be quite time-consuming and challenging. Instead, you can use the personal loan EMI calculator present on your lender’s website and understand the monthly EMIs that you would need to pay. This will help you further understand the right loan tenure according to your repayment capacity. Bank of Baroda offers a personal loan EMI calculator that is quite easy to use. All you have to do is enter your required loan amount, the applicable interest rate, and the tenure for which you wish to procure the loan and click on ‘Calculate’. The online calculator will then display the monthly EMI that you need to pay for the specified loan conditions. If you think the EMI for your chosen loan tenure will be difficult to afford, increase the tenure of your loan. However, do remember that this will increase the amount you pay in interest as well.

Pre-paying your personal loan before the tenure is complete

You can opt to pay off your personal loan completely before the tenure us complete. However, do note that to do so, you may have to pay a pre-payment penalty to the lender. You can weigh your options and choose to pre-pay the loan if it suits your circumstances and finances.

Personal loans are one of the most easily accessible loan types that are available in the market today. Bank of Baroda offers personal loans at competitive interest rates and makes it quite easy for you to get funding for all your important expenses. You can simply visit Bank of Baroda’s intuitively designed website and start your personal loan application process. The website has all the information that you may require to successfully apply for a personal loan online. Getting a personal loan through Bank of Baroda is easy with minimal documentation and quick processing. If you need further assistance, you can conveniently contact Bank of Baroda’s customer service by giving a call on the toll-free number - 1800 102 44 55 or drop into one of our Bank of Baroda branches near you.

Key Takeaways:

  • A personal loan tenure is the amount of time that you take to repay the loan.
  • Your personal loan tenure is directly proportional to your interest cost; the longer you take to repay the loan, the more interest you need to pay.
  • To choose the right loan tenure, you must first understand your monthly expenses and compare them with your monthly income.
  • You can pay off a loan before its tenure is complete; however, this might attract a penalty.
  • You can use the online personal loan EMI calculator on Bank of Baroda’s website for a quick and accurate estimation of your monthly personal loan instalments.

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    The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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