Author: Daniel Tan
Written at: 14 Jan, 2025
Choosing the right loan is not always about finding the lowest interest rate. Sometimes, the deciding factor is the loan quantum (amount borrowed) or the tenure (repayment period). These elements can significantly impact your financial situation, influencing why one offer might be more attractive than another.
These factors are interconnected with your monthly repayment amounts and overall interest costs. A larger loan quantum or longer tenure might seem less ideal on paper due to potentially higher costs, but in practice, they can align better with your needs.
Why Choose a Larger Loan Quantum?
A higher loan quantum can provide flexibility and address specific financial goals:
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Covering Larger Expenses: Whether for business expansion, purchasing a home, or funding a major project, a larger quantum ensures you have sufficient funds upfront.
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Avoiding Multiple Loans: A single, larger loan can prevent the need for multiple smaller loans, simplifying repayments and often may result in better interest rates overall.
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Opportunity Costs: Borrowing more might allow you to seize opportunities, like investing in high-return ventures or expanding your business, which smaller loans can't accommodate.
Why Opt for a Longer Loan Tenure?
Longer tenures often appeal to borrowers looking for manageable monthly repayments:
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Reduced Monthly Burden: Spreading repayments over a longer period lowers monthly installments, making the loan more affordable for cash flow management.
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Improved Financial Cushion: Smaller monthly commitments leave room for other expenses, savings, or emergencies.
Trade-offs
While larger quantum or longer tenure loans can be beneficial, here are the trade-offs:
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Higher Total Interest Paid: Longer tenures and larger loans mean you may pay more in interest over time.
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Commitment Risks: Extended repayment periods mean you’ll be committed to the loan for a longer time, which could be a concern if your financial situation changes.
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Stricter Requirements: Larger loans might have stricter eligibility criteria, requiring higher credit scores or collateral.
Making the Right Decision to evaluate loan terms effectively:
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Prioritize what you need the loan for and how much flexibility you require.
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Run the Numbers: Use our loan calculator to calculate how the quantum and tenure affect monthly payments and overall costs.
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Consider Future Scenarios: Anticipate potential changes in income or expenses over the loan period.
There are other factors, apart from the interest rate, that you may want to take into consideration when it comes to comparing loans - which you can find out more here.
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