How to choose your tenure between Short-term loans vs Long-term loans
Loans can be availed by an individual for a maximum tenure of 30 years, depending on an individual’s age. The maximum age up to which loans can be approved is until the age of 60 years or else up to retirement age, whichever is early in the case of salaried employees. In the case of self-employed individuals, the loans can be extended up to 65 years if the business is running smoothly. The loans can be given on a joint basis to the husband and wife if both persons are earning family members. The banks charge interest rates of 6-9% per annum on the loans being disbursed. The banks charge a penalty on the delay or default of the loans installments. The appropriate age for availing of the loans is in the age group of 35-45 years as these category people are mostly amongst the well-settled ones and still have many years for retirement. The people in the age group of 55 years and above should be most unlikely to purchase loans as for these people, the retirement age comes far closer, and thus the repayment term available is very less.
The minimum tenure for the repayment of loans is one year to a maximum of 30 years. The term loans with a higher duration can have lower monthly EMI, while the loans with a shorter duration can have shorter-term EMI. The installments of the banks should be paid on time before the due date to avoid the penalty being charged by the lender. The credit score of an individual should be above 700 points to get the loans approved easily. However, the loans extended to people with a lower credit score of 700 points may be charged with higher interest rates. The term loans are exempted under the income tax act 80C for the duration for which an individual pays the loan installments. The income tax exemption is provided beyond the tax slab of Rs2.0 lakh beyond the tax slab of Rs.2.5 lakh. The loans can be obtained through any of the banks or NBFC’s for home loans. The banks charge the processing fees as well to an individual who is 1% of the loan amount or else Rs.10,000, whichever is lower. The processing fee is being charged as part of the charges required for the verification of the background check of an individual.
Factors affecting the tenure of loans:
· Income of an individual:
The income of an individual is an important factor for determining the tenure of the loans. If an individual’s salary is high, then, in that case, availing higher amount of monthly installments is advisable as for the bank whenever as early the loans are repaid lower is the interest being charged by the bank. Thus, the borrower, by repaying loans early, can become debt-free early and reduce the loan installments’ liability. If the salary of an individual is less than in that case, the loans can be taken of the lower monthly installments. The loans liability should for upto 40-45% maximum of the monthly salary.
· Age of the applicant:
Age is another important factor for the tenure of loans. The higher the age lower is the loan being approved, while the lower the age lower is the loan approved by an individual. The tenure of the loans is usually 30 years, while the actual approval depends upon the age of the borrower. The retirement age or upto 60 years, whichever is early accordingly, the tenure is approved by the bank. Banks cannot extend the loans to an individual after the retirement age, except to the pensioners.
· Amount of loan approved:
The higher the loan amount higher is the duration for which the borrower may have to pay the installments, while as shorter the loan amount shorter is the repayment value and the interest charged upon the loan, which can be repaid early. Thus the tenure also depends upon the amount of loan being taken.
Thus the shorter the tenure of the loans lower is the liability of the borrower. At the same time, the higher the amount, the higher is the liability. Also, the loans should be opted in at the earliest age possible as the tenure can be availed longer for the loans.