Know Pros & Cons of Long Term Personal Loans Before Applying

Updated on: 14 Dec 2021 // 26 min read // Personal Loans
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Personal Loans are all purpose loans and thus offer a lot of flexibility to the borrowers. Be it sudden or planned home renovation, medical expenses, education or associated costs like purchase of laptop, equipment or more, a wide group of people tend to use Personal Loans to meet the cash crunches for various needs. Besides this is one product that offers extreme flexibility in terms of loan amount, tenure and repayment plans. Further you can choose from 100+ banks, NBFCs & financial products.

Let’s walk through tenure aspect of Personal Loans in this article. You can Apply for Personal Loans starting from 1 year to 5 years as per needs. Your EMI will reduce if you apply for long term loan, yet the overall cost of loan will rise. So choose wisely, and apply for long term loans or short term loans as per your financial health.

Long Term Personal Loans – Pros

Loan Amount

If you decide to apply for Long Term Personal Loan of 5 years or more you can apply for maximum amount as per your current debt to income ratio. Most leading banks & NBFCs offer loans up to Rs 40 lakh for 5 years. In some cases, bank may agree for a 7 year personal loan, however the sanction depends entirely on bank’s credit policy and your eligibility. On the other hand Short Personal Loans up to 1 year are available for up to Rs 5 Lakh. Thus, long tenure allows to borrow for more. You can avail of funds for big ticket as per your needs.

Size of EMI

When you apply for long term loan, the size of EMI falls. Thus, you can still pursue your dreams, despite cash crunch with the help of a Long Tenure Personal Loan. Let’s walk through how loan EMIs change, as you change the loan tenor.

Loan DetailsEMI (Rs.)Total Interest Payable (Rs.)

Rs 1 Lakh for 12 months @ 10.99%

8, 838


Rs 1 Lakh for 24 months @ 10.99%



Rs 1 Lakh for 36 months @ 10.99%



Rs 1 Lakh for 48 months @ 10.99%



Rs 1 Lakh for 60 months @ 10.99%



As we saw in this table, a long term will considerably cut the size of EMI, however as you serve the loan for longer term, the overall cost of interest rises. Even with a lower rate of interest, an overall cost of loan will be higher for a longer tenure. Thus, extend loan tenure only when you are unable to afford a lower tenure loan for your aspirations. It is always recommended to opt for shortest possible loan duration and lower Personal Loan Interest Rates.

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Personal Loans generally have a foreclosure cost attached. The foreclosure fee can range up to 4% of the outstanding principal amount. Most lenders have a timeline capping attached for foreclosure. In long term loans, the prepayment fee is substantially reduced after completion of 24 months of EMIs. While the same benefit is not available for small loans up to 2-3 years.


Personal Loans are unsecured loans and thus do not require any collateral or loan security. Thus the eligibility for loan is purely assessed basis your credit score, age, income & debt to income ratio. However by pledging collateral with the bank, such as in case of Loan Against Property, you can avail of a low interest loan for higher amount and that too for longer duration. Thus it is recommended to opt for a secured loan if you need a long term Personal Loan.

Improves Credit Score

When you serve a Long Term Instalment Loan earnestly you Build your Credit Score. A good track record of repaying a loan always helps your credit rating. The lenders always want to lend to customers who have exhibited good repayment history in the past.

Long Term Personal Loans – Cons

Limits your credit eligibility

Before approving your loan application, a lender always assesses your current debt to income ratio. By availing of a Long Term Personal Loan, your credit limit thus remains exhausted and affects your eligible for further loans. Also, it can get financially stressful to meet multiple EMIs in the month for several years. Thus before opting for a Long Term Personal Loan, you should carefully do the involved maths and assess your present income, cash flows & back up funds.

Overall Cost of loan escalates

By extending the tenure, you basically expand the overall cost of the loan. It is thus recommended to not stretch out loan tenure if you can afford a shorter one.

Tax implications

If you compulsively want to borrow for longer tenure, it is recommended to explore other options as as per the purpose of loan. For instance it is advisable to opt for Education Loan and Home Improvement Loan for financing higher education and home repair or extension respectively. You will enjoy associated tax benefits on these loans.

All in all, you must do your research before contacting a lender. It is advisable to compare various deals and choose the best Personal Loan.


Also Read: Credit Card Loan: A Preapproved Facility for Urgent Cash Needs


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