Personal loans are the most reliable and readily available credit tools to mitigate immediate financial crunches. As this credit tool is unsecured, these loans rely only on the credit scores and require minimal documentation. With the flexibility of tenure and benefits of personal loans, a common question raised is: “Which would be a viable choice: Long-term personal loans or short term.” Although the solution to this relies on the loan requirement of the borrower, the below drafted comprehensive guide would help every borrower make an informed decision.
Before we delve into the pointers listing the benefits and differences of each type, let’s first grasp the basic understanding of personal loans.
Personal loans: A glance
With minimal personal loan documents and no collateral submission, personal loans are the most accessible credit options for all regardless of self-employed or salaried applicants. Being unsecured, lenders use stringent criteria for loan qualification. Most lenders rely on the credit scores by CIBIL to determine the eligibility of the applicant. Listed below are the eligibility criteria for Fullerton India, although applicants should note that the requirements vary from lender to lender.
| Parameters | Salaried | Self-employed |
| Credit score | 750 or above | 750 or above |
| Age limits | 21-60 | 21- 60 |
| ITR | Required while submitting documents | Should have filed income tax returns for the previous 2 or 3 years. |
| Income | A minimum monthly income of Rs 25,000 for applicants from Delhi or Mumbai and Rs 20,000 for other applicants. | A minimum profitable income after-tax – this should a viable amount in the corresponding industry |
| Work Experience | One year | One year |
Applicants can further verify the probability of loan approval using eligibility calculators provided on the lender website. The personal loan interest rate calculator also helps applicants determine a lender convergent with their needs.
Short – term loans or long-term loans?
The personal loan options provided by lenders are highly flexible with the applicant’s needs. Applicants can avail the loan amount as per their financial necessity and choose a repayment period based on their financial capacity. The tenure for repayment for personal loans ranges from 12 months to 60 months. In regards to the tenure, both short term and long-term loans have their share of pros and cons. Thus, a decision among the two solely depends on the need and financial capacity of the applicant.
Here are some pointers differentiating the two options.
Pros of Long-term Personal Loans
Long-term loans are sanctioned for a tenure above 12 months and less than five years. With a more extended period of repayment comes added benefits, they are:
- Long-term loans build your credit score
Your credit score is the reflection of your financial health. By opting for long-term loans, applicants can make their credit scores through consistent repayment.
- Applicants receive better interest rates
While sanctioning a long-term loan, applicants scrutinise the financial profile of the applicant. With a healthy profile possession, applicants receive personal loans at better interest rates.
- Reduced EMIs
Since the repayment period is more extended, the EMI to be repaid becomes affordable for applicants.
Pros of short-term loans
In short term personal loan sanctioned for a period not exceeding 12 months. The benefits of availing short-term loans include:
- Short-term loans can be availed immediately
Since the short term is less risky from a lender’s perspective, these loans are sanctioned with no collateral submission and delay.
- Accessibility
With digitisation and omnipresent smartphones, it is easier to get short-term loans from the chosen lender.
- Margin of approval
Since these loans are considered as low-risk tools from a lender perspective, short-term loans are approved at a higher margin than short-term loans.
Thus surmising,
| Parameters | Short-term loans | Long-term loans |
| Interest rates | Higher interest rates due to shorter tenure | Lower interest rates |
| Tenure | Not exceeding 12 months | Tenure ranges between 12 months to 5 years |
| Approval margin | Higher, since lenders consider this credit tool is less risky | Comparatively lower, since lenders scrutinize the financial profile of the applicant before approval |
| Credit Score | 750 or above required.
Applicants with lower credit score can also obtain this loan as the loan amount is small |
750 or above required. Applications with lower credit score might be rejected |
| EMI | Higher | Lower |
Final thoughts
Personal loans are often saviours when a rough tide of financial crises pulls you down. However, deciding between short term and long term personal loans are dependent on the necessity and repayment tenure required by the applicant. Maintaining a good credit history helps applicants settle for loans with affordable rates.
