A personal loan has become a popular financing option in recent years. Based on the number of phone calls, emails, and messages we receive from lenders offering loans, it appears that there is a high demand for these loans. A personal loan, as the name implies, is not tied to a specific product or purpose. It’s a general-purpose loan that you may utilize for any needs you have in mind. The lack of collateral, low paperwork, and quick processing make personal loans the go-to lending option for millennials who are short on time. The fact that it works out cheaper than your credit card adds another feather to its cap. Let us try and understand everything that you need to know about Long-Term personal loans.
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What are Personal Loans?
Personal loans are unsecured loans that can be used to fund any necessity, such as college expenses, a foreign trip, a medical emergency, wedding expenditures, or the purchase of a large-ticket consumer durable. Personal loans can be repaid over up to five years.
What are Long-Term Personal Loans?
Personal loans with a repayment term of more than 24 months are known as long-term loans. Some lenders, however, provide personal loans with a longer repayment period. This might be used for things like higher education, home renovations, and so on.
These investments are ideally suitable to satisfy long-term needs and higher value requirements. They may or may not need a pledge to protect, based on the discretion of the lender. As such, the interest rate of long-term loans is cheaper than that of short-term loans, so you should seek to obtain a higher interest rate for long-term loans with the lender.
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How Does a Long-Term Personal Loan Works?
Long-term loans may be used to satisfy certain commercial needs, such as the purchase of equipment or some personal needs, such as the ownership of a house.
Long-term loans are the most common type of credit in the financial sector. With the introduction of technology and fast banking, home loans and car loans have become prevalent methods of lending. These loans usually give a substantial portion of the debt and are thus stretched over a significant duration of the repayment period.
Long-term loan features can differ considerably based on the reason for lending. Long-term loans almost often give customers a pre-payment option such that people who want to pay off their debts earlier than the stipulated timeframe will not have to pay continuously over long periods.
What are the advantages of Long-Term Personal Loans?
A loan is accepted to help people get through financial trouble. You may require a longer-term loan if the quantity of EMI you can pay must be manageable. The EMI for a long-term loan is lower than for a short-term loan. A personal loan has the advantage of not requiring any securities. You should keep in mind, however, that the longer the term, the longer the period for which you will be paying interest.
What do you mean by Long term or Short term loans?
A short-term loan is one with a repayment period of less than 12 months. A long-term loan is obtained for more than 12 months. Long-term personal loans are those with a repayment period of 12 to 60 months or more.
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Differences between long-term and short-term loans
All forms of loans have advantages and disadvantages of their own. Your specific requirements will help you determine which form of loan is best suited to your needs. Below is a description of the two forms of loans. You will use this knowledge to determine the kind of funding you want. Identify your needs, plan a budget, evaluate the items available, and then zero in on your loan.
|Factors||Short-term loan||Long-term loan|
|Tenure||Such loans have a duration of fewer than or equal to 12 months.||These loans have a period of more than 12 months. The duration of a personal loan can range from 24 months to 60 months.|
|Interest rate||Such loans can come at a higher interest rate because the period is shorter.||These loans offer a lower interest cost because the debt is extended over a longer period of time.|
|Documentation||The documentation is minimal.||Across the case of long-term loans, the lender can request additional documents|
|Collateral||No security or collateral is required.||If the lender is not convinced of your ability to repay the loan, you may be asked to provide a collateral or a guarantor as a security against your loan.|
|Specific needs||Short-term loans are suited to cover the short-term needs of a lesser amount.||Long-term loans are suited to meet your long-term needs which involve a huge amount.|
|Accessibility||Short-term loans are easily accessible online. You can obtain the funds in 24-36 hours.||These loans are accessible online as well as in banks.|
|EMI Amount||Short-term loans have higher EMIs because the repayment tenure is less than 24 months.||Here the installments are spread over a number of months, so the EMI amount payable each month is lower.|
|Restrictions on fund usage||There is no restriction on where you can use the borrowed money.||You can use the funds and where you like. No restriction on the usage of funds.|
Eligibility Criteria for Long-term Loans
Long-term personal loans include certain basic eligibility requirements, but the overall interest rate and loan amount will be set mostly on a case-by-case basis tailored to individual conditions. Depending on the loan institution, the guidelines may change. After that, let’s have a look at Fullerton India’s qualifying requirements, which must be met by all applicants.
- You must be between 21 and 60 years of age at the time of loan application.
- You must have a steady source of employment and income
- You should be an Indian resident
- You must have the required documentation
What documents are needed to avail a Long Term Personal loan?
The documents required to process a loan application include
- Basic KYC documents including valid address proof – such as PAN, Aadhar card, driving license, passport, etc.
- Proof of income such as Salary slips (for salaried customers) or income statements (for self-employed individuals)
- Bank statements of the past 6 months
- For self-employed individuals – proof of business existence and audited financial statements of the past 2 years.
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Does a Long-term Personal Loan impact the Credit Score?
Unless you default on a long-term personal loan, it has no impact on your credit score. Taking out a personal loan might help you build credit. Although it may lower your credit score temporarily, if your payment history is good, it will increase your credit score in the long run.
A long-term personal loan is a type of finance that may be utilized to fulfill unexpected financial needs. A duration greater than 12 months might be chosen based on your monthly cash flow. However, it is important to note that loans have a financial cost and should only be used when necessary. An instant personal loan is not a paycheck extension, and it should not be viewed as such. Credit is intended to be used properly and repaid when you have extra cash on hand. It’s just a temporary solution to get you through a cash emergency.