- Income- Your income determines your ability to pay the EMIs, and hence, plays a significant role in determining whether to opt for a short-term or long-term loan. Since opting for a long-term loan also implies paying a higher interest amount, if you have a good income, try taking a short-term loan. Although, the EMIs will be higher, the total interest paid will be reduced.
- Age- Sometimes, age is not just a number! It plays a significant role while deciding whether to opt for a short-term or a long-term loan. For instance, if you just started earning or are in your 20s or early 30s, you can consider a long-term loan. But if you’re already in your late 40s or early 50s, you have no option but to opt for a short-term loan. Banks offer loans only up until your retirement age.
- Rate of interest- Before deciding whether to opt for a short-term or a long-term loan, you need to check if the rate of interest is fixed or floating. Not sure what these mean? Let’s break it down for you. As the name suggests, a fixed rate of interest continues to remain the same, no matter what the market rates are. A floating rate of interest keeps fluctuating and changing with the market trends.
Watch this video: Fixed Vs. Floating Rate of Interest
But if you choose to prepay your loan, try doing it at the initial stages of your loan repayment tenure. Loans are usually designed in such a way that you pay most of the interest in the initial years. Since you’ve already paid the interest in the initial years, deciding to prepay a Home Loan later doesn’t really make sense.
Additional Reading: The Most Popular Loan Products In India
How to choose between a short-term and a long-term loan?
After taking the above two factors into consideration, you usually get an idea about the risk involved in taking a loan for a short as well as a long period. If you wish to pay as quickly as possible to get over the burden of paying the EMIs, a short-term loan should be your choice. The EMIs sure will be higher, but the overall interest amount and overall tenure of the loan will be significantly reduced.
However, if you don’t have the financial bandwidth to pay a higher EMI, you have no other option but to choose the long-term option. Although the interest paid will increase and so will the tenure, you’ll have the relief of paying smaller EMIs.
Hopefully, you’re all set by now! If you need more assistance, we have plenty of Home Loan options for you to consider.