Personal finance is an easy and quick way to meet all kinds of financial crunches – from medical emergencies to higher education expenses to grand weddings. However, for any loan, the borrower’s repayment capacity is what determines a smooth and hassle-free borrowing experience. Thankfully, borrowers can select a loan tenure based on their repayment capacity and ensure a smooth repayment experience.
Understanding repayment capacity
Start by understanding your repayment capacity thoroughly and choose your personal loan tenure accordingly. Put simply, repayment capacity is your ability to repay a loan timely. Lending institutions want to ensure that you, as a borrower, will be able to pay the loan EMIs without any delays or default comfortably.
To this end, they analyse several factors, such as:
- Monthly disposable income
- Monthly financial obligations
- Existing liabilities (credit card dues, rent, etc.)
- Stability of your income source
Typically, your lender would expect at least 55 to 60% of your monthly disposable income to be available to pay the loan EMIs. Therefore, the higher your monthly disposable income and the lower your monthly expenses and other liabilities, the higher are your chances of getting a loan offer.
Additional Read: Ways to Plan Personal Loan EMI Repayment Smartly
Tying repayment capacity with the tenure of personal loan
You will need to repay your personal finance in Equal Monthly Instalments or EMIs, and this is where the tenure comes into play. The loan amount you can avail from the lender will depend upon the loan tenure you choose, but the personal loan interest rates depend heavily upon your eligibility. Therefore, the only area you can exercise control is when selecting the loan tenure.
How? Well, your loan tenure is inversely related to the EMI amount – the shorter the tenure, the higher will be the EMI you need to pay each month; likewise, the longer the tenure, the lower will be the EMI you need to pay. Simply by choosing a longer or shorter tenure, you can adjust the EMI amount until you arrive at a figure you’re comfortable with paying each month.
However, the most important thing to keep in mind is that a longer tenure will bring a higher personal loan interest outgo. Therefore, make sure to use a loan EMI calculator online to accurately calculate the interest portion of your EMI and see if choosing a longer tenure is indeed favourable. If not, it is better to either opt for a shorter tenure or borrow a lower loan amount.
Over to you
Chosen your personal loan maximum tenure based on your repayment capacity? If not, then use Tata Capital’s online EMI calculator or get in touch with our lending experts for the right guidance.
We offer personal loan up to Rs. 25 lakhs for a tenure of 12 to 72 months. Our loan application and documentation are hassle-free and can be done from the comfort of your home. Get in touch with us today and meet your financial needs with ease!