In an ideal situation, everybody wants money for all his needs. But, in reality many of us have very less options available. Either one has to compromise or borrow to meet our basic needs or desires. Its a great opportunity for Banks/ NBFC’s to fill the gap between the reality and the aspirations. They know their potential customers and keep tracking their needs. They keep informing their customers with the ongoing offers regarding the loans, low rates, other offers with quick disbursal and many more. SMS, e mails and phone calls keep them connected.
Loan can come as a basic need at any point of time of life. We can feel the need at an early age to buy a new home or to fulfill a need of any family member. This can be related to a medical emergency, higher education, business expansion etc. Developing technology is changing the mindset of the lenders as well as borrowers. We Mudra Home are here to help and guide you to deal with your current financial situation. It takes only 10 seconds to change the game.
Loan helps to fulfill the dreams and comes with its own commitments in the form of Equal Monthly Installments (EMI’s). EMI’s are to be paid regularly during the complete period of loan. It is important to keep balance EMI’s and the loan tenure. Choosing a right life of your loan is very important. Right tenure is as important as choosing the interest rates on your loan amount or focusing on the repayment or the prepayment options. Due to rate inflation, the right loan tenure becomes more important as the rate of interest (ROI). Several factors need to be considered before taking a loan for a specific period: (Know more which factors effect your loan EMI)
Borrowing in your late 20’s or early 30’s is always advantageous to opt for a longer tenure. This will help you to repay before you retire.
If its a time of your family expansion and you know that the expenses will be increasing at its pace. It will be a good choice to opt for a longer tenure as the EMI burden will be less. One always have an option to prepay the loan amount to an extent when ever you have a surplus amount in your hand. Similarly, if you are opting for loan in your late years of your career then choosing a shorter tenure with a higher EMI’s is what best suits you.
One has to choose an EMI which can easily paid after bearing all the expenses and obligations. Tenure can also be chosen accordingly.
Prepayment is an important factor to be considered. EMI burden can be reduced in the early stage of the loan only of the lender allows to pay any number of times without any extra cost. Even if the loan tenure is longer one can easily make prepayment of loan. Since, the prepayment amount gets adjusted, the principal amount gets reduced at a faster pace reducing the EMI burden or the loan tenure.
Lenders focus more on Tenure and Age as it helps in determining the EMI, eligibility and loan repayment capability. EMI is always connected with age and tenure. EMI is a fixed amount paid to the lender on a monthly basis towards the repayment of the loan. EMI has two components – principal and interest. In the initial years of repayment, the interest part of the loan is higher whereas in the later stage the EMI reduces the principal amount. As a part of a consumer two factors are to be considered in detail:
- Longer the tenure, the longer is the period to repay the loan;
- The longer the time to repay the loan, higher the interest you pay.
EMI and Tenure
Lets have a look with an example to understand why and how the interest amount and the total payable amount increases when you pay the loan in a long duration.
Suppose Mr. X has to repay the loan of Rs. 5Lakhs @ of 12%.
As per the above table, if Mr. X chooses to repay within a year, he only have to pay the due amount. Whereas, if he decides to repay the loan in 3 or 4 years the total payable amount is much higher. It shows that before applying for a loan customer has to asses the finances and then decide about the tenure. However, all loans are not as small as shown above but still choosing a shorter tenure is always possible. Monthly income and expenses along with the previous savings need to be checked for any emergency. The only benefit of longer tenure is the lower EMI’s. It might lower the financial pressure for a time being but at the end you will be paying a lot more than it worth.
When you are working and have regular source of income, the lender is assured of the repayments. Choosing a longer tenure and managing the EMI’s with other expenses is only possible when you fall in a prime age bracket. But also to keep in mind that choosing longer tenure means you are generating revenue for the lender.
Before signing any document for the loan, read the fine print carefully. Finishing the loan before the end can only be possible if their is clause present in the document that specifies:
Pre-payment is allowed without any extra charges
Pre-payment is allowed without any penalty
Pre-payment is allowed within or after specific period of time (six months or may be after 1 yr or the duration decided by the lender)
No early closure allowed
EMI and Age
Its no secret that the credit score, credit history, the organization and the monthly salary makes a impact on the eligibility of the loan. Though age is not completely a deciding factor but yes it influence the loan amount and the tenure of the loan. It may not be impossible for the people availing a loan reaching near their retirement but yes it is very easy those who are in their prime age.
For example if Mr. X working with a reputed MNC and earning a 7 digit salary with an excellent credit score. But… He is 50 years of age and want to avail a home loan or a LAP. Being everything alright with him, his age can make it difficult for him to get a loan. Banks/ NBFC’s though lend but look after the recovery also. Mr. X will retire in next 10 years and usually the loan tenure is 15-20 years. Lenders are concerned about the repayment of EMI’s after the retirement. Indeed, the security will help but loan approval or even the sanctioning will be difficult. Mr. X can also opt for shorter tenure or a smaller loan amount can help him (in case of home loan, he can make a bigger down payment).
The above example depicts an ideal situation. The loan sanction and the approved amount depends on the kind of the loan applied. If Mr. X would apply for an unsecured loan i.e. A personal loan, it can be easily approved as the loan tenure is shorter for the same. Being Mr. X a salaried person, the situation will be completely different with the self employed. Age is an important criteria in most of the loan processes but their is no thumb rule that individuals with higher age do not get an approval for the loan.
At the end the conclusion is, that if you are at a life stage where you can easily opt for higher loan tenure resulting in lower EMI, you should opt for the same. The prepayment option is a handy option that allows number of payments without any additional cost. This allows you to provide a cushion of paying lower EMI’s and reduce your liability whenever you have an extra amount to pay off. The maximum secured loan tenure is 20 year. The longer the tenure, EMI burden is low that makes it very lucrative. In the long term loan, the interest to be paid on the total loan amount goes very high. It is always best to opt for a shorter tenure loan which is easily affordable. By keeping your loan tenure one can easily get over with its liability in a shorter time. Thus, saving a lot on finances.