Long-term loans are those which have a more extended repayment period that can vary from 3 to 30 years. It can fulfill various financial requirements such as buying a house, renovating, pursuing higher education, buying a vehicle, starting a business, or even funding a vacation. The minimum tenure of such loans is three years.
These usually have lower interest rates as money is borrowed for a more extended amount of time, except in the cases of personal loans. Most of the long-term goals are designed so that the recipient can pay the due amount prematurely against some fixed interest.
These are the general characteristics of a long term loan.
The loan amount is usually large
Generally, the principal amount is relatively high in long-term loans. The limit depends on the borrower's capabilities and is determined by the bank or the financial institution providing the money.
The interest rates for such loans are generally low
Since the tenure of the loan is very long, the interest rates are usually kept very low. This is one of the major attractions of taking a long-term loan.
Such loans are often associated with the collateral
Given the large sum of money disbursed, long-term loans are primarily associated with the collateral. Collateral can be a piece of property that the bank can take over if the borrower cannot pay back the sum.
Exemption from taxes
A benefit of a long-term loan that is generally overlooked is that in most circumstances, depending on what you utilize the loan for, you may get a tax exemption. This can be an added incentive for you to consider taking a long-term loan.
These long-term loans can vary from home loans, car loans, and education loans to loans for weddings or the funding of some small businesses. Let's discuss them one by one to find out what is best suited for you.
Everyone wishes to own a house. It is seen as a symbol of success and status in society. That being said, in the present market, the cost of buying a house is astronomical. This is particularly the case across big cities. Thus one can generally resort to home loans to finance their dream house.
The amount for these loans can vary from 1 lakh to 1-2 crore, and the tenure can extend from 3 years to 20 years. The loan is usually taken against the property itself. The pre-closure option depends on the lending party, and payments regarding this option can be charged or not charged. The borrower should have a constant source of income.
Education loans are offered to students to continue their higher education. Depending on the college, courses, and amount by the lending institutions, tenure and interest can vary. Loans can be taken to study in India as well as abroad.
Generally, the tenure is longer for medical and engineering students as the course itself requires 3-5 years to be completed.
Students can start to repay as quickly as they secure a permanent income source after graduation. Students are recommended to apply for a more significant amount of loans to get a short time of flexibility for finding better jobs and maximizing their chances to repay the due amount.
Cars are considered a luxury and symbolize an improved lifestyle. Like a house, one also dreams of owning a personal vehicle.
This is the main reason why interest against car loans is higher, stated generally. But in recent years, demand for these loans has increased resulting in greater competition in the existing market.
These factors often force the lending institution to lower its interest rates. This kind of loan can extend anywhere from 3-7 years, and the loan amount can reach up to 10 lakhs, higher in some cases.
Any business in the world will require some sort of investment to begin with. Sometimes we do not have the funds necessary to make such an investment; this is where business loans can help us in picking up the slack.
These loans can be used to start a new venture, start afresh, expand new warehouses, improve logistics, install new machinery, etc.
As is the case with other long-term loans, this loan is also provided for a minimum of 3 years. The interest rates are relatively low. These loans are best suited for small business owners and can be applied via any central bank or financial institution.
Emergencies can come anytime; it becomes extremely important that you have a backup in case you find yourself in one. This is the reason why personal loans have gained such prominence recently.
Whether it be for medical emergencies or repaying a lender personal loans can be your one-stop solution. Even for some personal cravings such as buying clothes, electronic gadgets such as phones, laptops, etc you can apply for personal loans.
Generally, such loans are quickly disbursed within a timeframe of 24 hours And it does not require collateral. A simple credit score and income proof are sufficient to apply for such a loan. Even though search loans can also fall under short-term loans but it depends on the terms agreed by the lender and the borrower.
With this, we have covered most of the basic long-term loans for you. Now we would like to present some of the benefits of such a loan and how one goes about applying for them with the required eligibility criteria.
The benefits of a long term loan are manifold. We have only tried to enlist some below.
The requirement for funds can be felt in any company, business, and start-up. Hence it becomes extremely important that you manage your funds efficiently. This is where long-term business loans can come in handy.
One can easily take a loan to fund a particular process, freeing existing funds to be used somewhere else. Search loans are generally taken on long-term clauses, as they can be paid off with ease due to the low-interest rates.
It must be mentioned that you should be particularly careful before taking any sort of loan as failure to repay any loan can be catastrophic. Hence one should plan on the mechanism of how to pay back the loan and only take the amount that is required for the cause.
One of the most lucrative reasons for taking up long-term loans is their low-interest rates. The financial institution or bank generally takes a higher degree of risk with such huge loans, hence it is only fair for them to accept collateral in return for the money. More often than not the item to be bought or acquired is generally considered collateral.
In case the borrower is unable to pay back the funds effectively in due time the bank can seize the property of the individual. Thus one can easily understand why long-term loans are associated with such low-interest rates.
Generally, when one plans to start a business they look for investors to raise funds. This means giving up part of your company as equity to the investor.
In some cases it might be a better option to opt for a loan rather than going to an investor. Long-term business loans are there to satisfy this particular need that can be good alternatives for you.
A credit score, also sometimes referred to as CIBIL score is generally the measure of the reliability of a borrower. Hence it becomes extremely important for anyone to maintain a good credit score. This can be done by easily paying back the term payments.
Generally long-term payments are designed in such a way by keeping the income history of the borrower in mind that they can pay back the loan amount with ease. A good credit score is vital when applying for personal or other types of loans. Thus it is advised to keep a track of your credit score.
So we have seen that long-term loans can be advantageous for both lender and borrower. You can efficiently manage your funds and along with it build up good credit. This can be vital for taking further loans in times of need.
The following are the key eligibility criteria that you need to keep in mind before applying for a long term loan:
Indian citizenship is a must.
The minimum age is 18 and the maximum age is around 50 years to apply for a loan. It must be kept in mind that the age criteria can change based on the bank or financial institution.
The applicant should be able to show proof of a regular source of income.
Generally, such long-term deals are done in the presence of a guarantor who takes responsibility in case of any mishap.
Generally, most banks and financial institutes have online facilities that can help you to easily apply for a loan in a very short amount of time. Banks and NBFCs are some of the newest financial institutions in India that are digitizing their loan disbursal systems to help people from all parts of the country.
Another alternative to this can be visiting the lending company physically and applying from there.
While taking a loan the credit score becomes extremely important. Thus we from Money View would like to suggest you keep a close eye on your credit score before applying for a loan.
A long term loan is designed to help you meet your requirements that require a huge investment on your part. Loans like home loans, mortgage loans, car loans, educational fall under the category long term loan.
Yes. You need to provide collateral if it is a long term loan. For example, if you purchase a home with the help of a home loan, your lender would use the home as collateral /security against the loan amount.
No. it’s up to the borrower whether he/she wants to borrow alone or add a co-applicant. However, if a borrower’s monthly income is not sufficient enough to fulfill the loan eligibility requirement, then he/she can add a co-applicant.
It’s advisable to have a credit score of 750 or above to be eligible for a long term loan in India.
Yes. It can be considered as a long term loan depending on the loan repayment tenure chosen by you. You can repay it within a year or two, or request for extending the tenure up to 5 years.
No. It’s applicable only on home loans.
It is calculated using any EMI Calculator available online where you need to fill in the following information – loan amount, loan tenure and the applicable rate of interest. The mathematical formula used for calculating EMIs is – EMI = P × r × (1 + r)n/((1 + r)n - 1). Here P stands for loan amount, r for interest rate and n for loan tenure in number of months.
No. For example, a car loan does not provide you tax benefits.
Yes. You can avail of tax benefits on your educational loan under 80E of the Indian Income TAX act, 1961 for a period of a maximum of 8 years. The interest paid on your principal amount is considered a deduction.
If you can repay your entire loan amount (both principal and interest payment) before the scheduled date of repayment, it’s called pre-closure. Your lender may charge you loan pre-closure charges.
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