An Explainer: Tenure

Description

If you are taking a loan to finance the purchase of your dream home, an understanding of the term 'tenure' is important for you. Primarily a banking jargon, tenure is often used interchangeably for 'due date'. However, tenure and due date are not the same. For example, if your bank grants you a loan for 20 years, the 20-year period is the tenure within which you have to repay your loan. The total amount to be repaid during this tenure – that is, the principal amount plus interest for the said period – is broken down into equated monthly instalments (EMIs) . You have the option of either paying the full amount in EMIs over the entire tenure, or pre-paying the amount before the end of the tenure. Most banks charge you a fee for repaying the loan before the end of the tenure.

While in case of an unsecured loan, such as a personal loan, the tenure can stretch from one year to 10 years, the tenure for a secured loan like home loan can go up to 30 years.

If you want to stretch the tenure of your loan beyond the pre-set duration to reduce your EMI, you will have to go through a process for it. Any default on the repayment tenure will subject you to a penalty from the lender.