A very significant element to be considered and kept in mind when availing a loan is the loan tenure. This is because loan tenure actually impacts and decides the amount that you will have to pay as interest on the entire loan.
What exactly is loan tenure? It is simply the time period in which you decide to pay back the loan and its interest. When people avail a home loan, they usually take it on a long term and they have to Equated Monthly Installments (EMI). But what decides the amount of these EMIs? It is the loan tenure and the principal amount of the loan.
Given the fact that home loans are for a long tenure, owing to their high amounts, the decision of loan amount and its tenure should be made with a rational, reasonable and logical approach. All this is regardless of the schemes offered by the banks.
Make your decisions keeping the following basis in mind –
• Repayment potential ‘
• Actual Requirement or need
• The capacity to fulfill the needs of the loan during the tenure
• Resources available
If you choose a longer tenure, then it will result in EMIs of lower amount, paying which becomes a little easier. A longer home loan tenure will also raise the cost of the loan, since the interest too will be paid for a longer time. You will have to peek into the future to look for the financial sources that will be available to you, when you choose the loan tenure.
Prepare a cash flow statement that covers and approximately analyzes all the payments that you will make and also your income, for the coming few years. You have to keep in mind that your income may increase over the years and that should also be considered while preparing the cash flow statement.
The perfect tenure would be when the person is paying all the EMIs timely and without any default or delay. The EMI computed based on tenure of the loan should have some margin so that no problems are faced even if the interest rates increase in the future.