Choosing the right repayment schedule is one important decision that you need to make wisely when taking a personal loan. It affects your equated monthly instalments (EMI), total interest payable and the overall cost of borrowing. A short-term personal loan allows you to be debt-free faster, but with higher EMIs, whereas a long-term personal loan reduces the EMI amount.

This is why it is important to choose wisely between a short-term and a long-term personal loan. In this blog, we understand the benefits and disadvantages of both to help you make a better choice.

Understanding Personal Loan Tenure

The personal loan tenure is the time within which you repay the principal amount you borrowed with the interest. It plays an important role in deciding both your monthly EMIs and the interest you will pay. Here are all the ways tenure affects personal loans:

1. Effect on EMIs

• Your personal loan EMIs will be higher if the repayment is spread over fewer months. This may strain your monthly budget, but it will assist you in clearing the debt within a short time and save you interest.
• Your EMIs will be lower if the repayment is spread over a longer period of months. This allows you to manage your budget more easily.

2. Impact on the Total Interest Paid

• The shorter the tenure, the less interest you will pay. This also reduces the cost of borrowing.
• You will pay the higher tenure if the tenure is longer, but it increases the cost of borrowing.

3. Impact on Financial Flexibility

• Shorter loans will tie up your income over a shorter period of time, but you will need a high cash flow.
• The long-term loans give you breathing space on other expenses, but increase your financial obligation.

Benefits and Drawbacks of Short-Term Personal Loans

Here are the benefits and drawbacks of short-term personal loans you must consider before opting for them:

Benefits of Short-Tenure Personal Loans

• Lower Interest Cost: The key benefit of a short-term personal loan is that you pay less interest overall, as the interest does not have much time to accumulate.
• Faster Debt-free Life: You become debt-free much earlier. This gives you peace of mind and also increases your credit score.
• Improved Money Management: Since you pay higher EMIs every month, you are more aware of your finances and spend less on unnecessary endeavours.

Drawbacks of Short-Term Personal Loans

• Higher EMIs: The EMIs are much higher than in personal loans with longer tenures. This impacts your monthly budget.
• Higher Risk of Default: If your income drops or an emergency occurs, paying high EMIs can be stressful.

Benefits and Drawbacks of Long-Term Personal Loans

A long tenure personal loan is usually the most preferred tenure among people, as it leads to much lower EMIs. However, there are disadvantages associated with long-term personal loans.

Benefits of Long-Term Personal Loans

• Reduced EMIs: The key benefit of a short-term personal loan is that your monthly EMIs are lower and are less burdensome for your monthly spending.
• Greater Flexibility: As your EMIs are lower, you can pursue other financial goals simultaneously, such as saving or investing.
• Increased Loan Eligibility: When the tenure is longer, you can borrow a greater amount, as the repayment burden every month is less.

Drawbacks of Long-Term Personal Loans

• Higher Total Interest: The longer the tenure, the higher the interest you pay, which adds up over time and leads to a huge sum.
• More Debt Burden Over the Long Term: You are in debt for a longer duration. This could restrict you from obtaining new loans, as it will add to your monthly commitments.
• Increased Cost of Borrowing: As you pay higher interest, the cost of borrowing increases with it.

Short-term vs Long-term Personal Loan: Key Differences

Here is a key difference between short-term vs long-term personal loans you must know:

Parameters	Short-term personal loan	Long-term personal loan
Tenure	6 to 12 months	12-48 months or higher
Monthly EMI	Higher	Lower
Total Interest Paid	Less total interest paid	More total interest paid
Ideal Loan Amount	Small to medium	Medium to large
Cash Flow Effect	more impact on the monthly budget	Less impact on the monthly budget
Debt Clearance	Faster repayment	Slow repayment, longer commitment
Best For	Borrowers with a steady income	Borrowers who prefer manageable EMIs

How to Select the Right Loan Tenure?

Here are the factors you must consider to choose the right personal loan tenure:

• Check Your Income and Expenditure: If you have a fixed income and can afford to pay higher EMIs, opt for a short tenure. If your monthly budget is tight, a longer tenure is better.
• Calculate the Total Interest: Always know the overall interest you will pay throughout the whole term.
• Consider Long-term Goals: If you want to invest in a house or a car in the next few years, a shorter tenure will allow you to get debt-free faster and free you up for another loan.
• Look at Prepayment Options: Banks and Non-Banking Financial Companies let you repay the loan before its maturity at no extra cost. You can opt for a longer tenure for smaller EMIs and settle it earlier when you have excess money.

There is no one-size-fits-all answer to what is ideal between a short-term and long-term personal loan. It varies based on your income level, objectives, and tolerance. Select a short-term personal loan if you can pay higher EMIs and want to save money on interest. If you want to pay lower EMIs without straining your monthly budget, go with a long-tenure personal loan.

At DMI Finance, we offer personal loans with a flexible repayment tenure. You can apply for a personal loan of up to ₹5 lakh and repay it from 12 to 48 months.

Frequently Asked Questions (FAQs)

1. Can I change my personal loan tenure after taking the loan?

The best way to change your personal loan tenure is by opting for a personal loan balance transfer.

2. Does choosing a longer tenure affect my credit score?

No, the tenure itself doesn’t affect the credit score, but missing EMIs on a long tenure loan can hurt your score since you’ll have more instalments to manage.

3. Is it better to prepay a long-term personal loan early?

Yes, prepaying reduces the total interest burden and shortens your repayment period.

4. Can I take a short-term loan and later extend it if needed?

Not usually. Once fixed, tenure changes require lender approval or refinancing with a new loan.

5. Do lenders charge more interest for longer tenures?

Lenders usually decide the interest rate for a personal loan based on your income, credit score, employment stability and debt obligations. While a longer tenure attracts a higher interest rate, it’s not the only factor.

6. How do I know if my income can handle a short-term personal loan?

Check if your EMI is below 40–45% of your monthly income. If it exceeds 45% of your EMI, it may strain your budget.

7. What is the maximum tenure that DMI Finance offers for a personal loan?

DMI Finance offers a maximum personal loan tenure of 48 months with a flexible repayment schedule.

8. Does a shorter tenure increase my loan eligibility in the future?

Yes, repaying quickly improves your credit profile, making it easier to qualify for future loans.

9. Should I pick a long tenure if I expect a salary hike soon?

You can, but once your income increases, try to make part-prepayments to reduce interest.

10. Are there any penalties for closing a personal loan early?

Some lenders charge a small foreclosure fee, so always check the prepayment terms before signing.

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