Demonetization, its Advantages & Points to Note
Everyone in India and abroad was surprised by the government's announcement to replace existing currency notes of Rs. 500 and Rs.1,000, which accounts for alm . . .
If you have decided to take a two-wheeler bike loan, you must be searching for various ways to get the best deal for your loan. And like most people, you might be focusing on getting the lowest monthly EMI. Here is a quick suggestion. Don’t just aim for the getting the lowest EMI; focus on how you can save on interest and the lower the total cost of the loan. It’s here that the tenure of the loan can make a lot of difference. If you choose the right tenure for your bike loan, you will end up saving money.
The tenure (in addition to other criteria such as age and income) also helps the lender make an informed assessment about the applicant and check whether he/she will be able to repay the loan.
Let’s quickly understand more about loan tenure and its impact on the total loan cost.
What is Loan Tenure?
Simply put, the loan tenure is the amount of time sanctioned to the loanee to repay the loan he/she has taken from the financial institutions. Personal loans, loans on vehicles, education loans etc. have shorter tenure in comparison to home loans.
Effect of Loan Tenure on Loan Repayment
One mistake that most loan applicants commit is focusing only on the EMI charge and not the rate of interest or more importantly, a tenure that could have helped save a lot of money.
Let us do some simple calculations for a better understanding.
Loan amount = Rs 1 lakh
Rate of Interest = 10% per annum
Clearly, if the tenure is only for a year, the rate of EMI will be high but the rate of interest will be lower. On the other hand, if the tenure increases, the EMI will be less but the rate of interest will almost double up. The increase will progress as the tenure extends. However, this is a decision that is subjective to the applicant’s financial ability.
a) Shorter Tenure: Pros and Cons
b) Longer Tenure: Pros and Cons
What Should Be Your Two-Wheeler Loan Tenure?
There is no such thing as an ‘ideal’ two-wheeler loan tenure since financial situations vary for everyone. If you can afford to pay a higher monthly EMI, then try to choose a short loan tenure as you will end up paying less rate of interest. If you are running low on money, then a longer tenure of around 3-4 years would be a good time to repay the loan. The longest tenure should be chosen only if you are under extreme financial distress since you are going to end up paying a lot more than the original principal amount.
Finally, the tenure of you loan should be what you can comfortably pay. However, it’s also an important factor to consider, apart from your monthly EMI, when you are choosing a bike loan. Always remember that the longer the long tenure, the higher the interest rate and the higher the total loan cost. Now that you are armed with all the information, go ahead and buy that dream bike.
The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.