What are Long-Term Loans? Know Features, Benefits & Types

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Term loans can be crucial when financing significant life events or business ventures. These loans, especially long-term loans, provide the borrower with substantial capital and spread the repayment over an extended period, easing the financial burden. This blog will dive deep into long-term loans, their features, benefits, types, and how to secure one for your needs. Understanding these aspects will help you decide whether a long-term loan suits your financial landscape.

What are Long-Term Loans?

Long-term loans are financial commitments extended over a period of more than four years. For example, Kotak Mahindra Bank's long-term Personal Loans are designed for salaried and self-employed individuals needing substantial funding. They can be for tenures of up to six years. They are commonly used for investing in commercial property purchases, large-scale investments, or extensive business expansions.

Extended Duration: These loans have a longer repayment period, giving borrowers more time to repay the borrowed amount.
Substantial Funding: Term loans offer significant capital, making them suitable for large-scale investments or purchases.
Diverse Usage: They are commonly used for various purposes, such as purchasing property, funding higher education, or financing extensive business expansions.
Strategic Financial Planning: Long-term loans require careful financial planning to ensure you can comfortably manage the repayment obligations over the extended duration.

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Features & Benefits of Long-Term Loans

Long-term loans provide various benefits for addressing significant financial requirements and supporting substantial investments. These loans are structured to offer more than just immediate financial relief; they are strategic resources for financial planning.

Let's explore the major features and benefits of Kotak's longest-tenured Personal Loans, which make them a preferred choice for many borrowers.

Higher Loan Amounts: These loans provide substantial capital of up to Rs 40 Lakh, enabling large-scale investments or purchases.
Lower Rate of Interest: Compared to short-term loans, long-term loans often come with an attractive interest rate, starting at 10.99% per annum, making them economically viable.
Collateral Submission: Unlike most term loans, requiring the borrower to pledge assets, Kotak’s long-term Personal Loans are unsecured. It means they do not require any collateral.
Repayment in Instalments: The repayment is structured in manageable instalments over the years, reducing the monthly financial strain.

Eligibility Criteria for Long-Term Loans

Securing a long-term loan requires meeting specific eligibility criteria set by lenders. These criteria are important for lenders to gauge the risk of loaning substantial amounts over long periods.

Credit History and Score: A robust credit history and high credit score are imperative to qualify.
Stable Income: Proof of a stable and substantial income to ensure repayment capability.
Employment Status: The applicants should have a stable business or employment, especially in a reputable organisation.

How to Apply for Long-Term Loans?

Applying for a long-term loan involves several steps that require attention to detail and careful preparation. These steps ensure that both the lender and the borrower know the terms and commit to the engagement. Here's a snapshot of the main steps.

Assess Your Needs: Clearly define why you need the loan and the amount required.
Check Eligibility: Ensure you meet all the criteria of the lending institution.
Gather Documentation: Compile all necessary documents, including identity proof, income proof, business documents, etc.
Apply: Submit your application along with all required documents to the lender.
Negotiation and Approval: Discuss the terms with your lender, and your loan will be processed upon agreement.

Before applying for a long-term loan, it is important to know what FOIR is. FOIR, or Fixed Obligation to Income Ratio, is a measure banks use to assess an applicant's loan repayment capacity.

It is calculated by dividing total fixed obligations by gross income.

Managing Repayments on Long-Term Loans

Effectively managing repayments is essential when dealing with long-term loans to avoid financial strain over time. Setting up an automated payment system can ensure timely payments and avoid late fees.

It's also wise to allocate any windfall gains, such as bonuses or tax refunds, towards prepaying the loan, which can significantly reduce the interest burden and shorten the loan tenure.

Impact of Refinancing on Long-Term Loans

Refinancing long-term loans can be a strategic financial move, especially when interest rates drop or your credit situation improves. By refinancing, you can secure a lower interest rate, which can reduce your monthly payments and total interest costs over the life of the loan. However, it's crucial to consider the refinancing costs, such as processing fees and potential penalties for early repayment.

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Conclusion

Long-term loans can be a gateway to achieving significant financial goals, whether owning a home, investing in education, or expanding a business. Understanding the nuances of these loans helps make informed financial decisions and plan for a stable economic future.

Those requiring urgent funds can apply for a long-term Personal Loan of up to Rs 40 Lakh at interest rates starting from 10.99% per annum and extended tenures of up to 6 years.

Frequently Asked Questions

1. What is the longest-tenured loan?

The longest tenure for a Personal Loan at Kotak can be up to 6 years. This allows the borrower to repay the loan in equated monthly instalments.

2. Can I get a Personal Loan for 20 years?

Obtaining a Personal Loan for 20 years is impossible at Kotak Mahindra Bank. However, you can take a Loan Against Property from Kotak Mahindra Bank with a tenure of up to 15 years.

3. What is an example of long-term financing?

A typical example of a long-term loan is a mortgage used to buy a house. The repayment of these loans is spread over many years, often up to 25 years, to make the monthly payments manageable.

4. Is a long-term loan an asset or liability?

A long-term loan is considered a liability for the borrower since it represents a debt that must be repaid over time. However, the asset purchased using the loan, like a home, is considered an asset.