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.
Characteristics of a Long-term Loan
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.
Types of Long-term Loans in India
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.
Home Loans
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
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.
Vehicle Loan
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.
Loans for Small Businesses
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.
Long Term Personal Loans
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.
Long Term Loan FAQs
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.