You may often hear the word tenor in banking terms, especially related to credit or loans. However, do you already know what tenor is, its types, and its uses in banking products? In this article, we will discuss the term tenor in detail so that you can better understand its use in banking. Come on, see the full discussion.
Definition of Tenor
Tenor is the term of the loan or credit granted to the debtor (borrower) for the disbursement of loan installments. That is, if you want to apply for credit within the agreed tenor, for example, 12 months, you are required to repay the credit for up to 12 months.
Benefits of Tenor
The use of tenors in banking plays a significant role, particularly in the credit or borrowing process. Tenor serves as a benchmark in the ongoing credit process and can minimize potential risks within the credit system.
Use of Tenor in Banking Products
There are two contexts for the use of tenors used in banking products, namely loan tenors and deposit tenors.
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Loan Tenor
The loan tenor is the agreed period when applying for a loan. The tenor of the loan will affect the interest charged by the bank to the borrower. The longer the chosen refund time tenor, the greater the total interest paid by the applicant.
For example, you want to borrow funds worth IDR 50 million with a tenor of 5 months and an interest of 2% every month. Then you must pay installments worth Rp10 million and interest of Rp1 million. In total, you have to pay loan installments worth Rp11 million per month.
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Tenor Deposit
The deposits tenor is the period used in deposit products. Usually, banks offer several tenors ranging from 1,3,6,12, and 24 months for deposits. Unlike the tenor of the loan, the tenor of the deposit affects the interest you will receive as a store of funds at the bank.
For example, you deposit funds of IDR 10 million in a bank with a tenor of 1 year, and the interest that applies according to the funds you save, and the tenor is 4%. So, at the end of the fund collection period, you can get IDR 10 million plus IDR 400 thousand in interest. In total, you will get IDR 10.4 million (before tax deduction). Please note for deposits, the tax set is 20% in accordance with applicable regulations.
Types of Tenors
The type of tenor can be distinguished based on the payment period, namely long tenor and short tenor.
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Long Tenor
In accordance with the name, a long tenor is a tenor with an installment period ranging from 3 years to 30 years. Long tenors are generally applied to loans or debtors who have a large amount of principal debt, the value of which can reach billions of rupiah.
An example of the application of a long tenor is a home ownership loan (KPR) whose installment period can reach 15 years.
The advantage of a long tenor is that the monthly installment fee can be smaller than the short tenor. However, the overall total debt can amount to greater because the interest charged is also greater.
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Short Tenor
A short tenor is a tenor with an installment period ranging from 1 month to 3 years. Generally, short tenors are applied to credit or financing that has a not in large amounts of principal debt.
Examples of short-tenor applications are loans with vehicle BPKB guarantees and electronic loans.
Unlike long tenors, short tenors have less total debt than long tenors because there is less interest charged. However, the number of monthly installments is quite large compared to the long tenor. You can choose a short tenor if you are sure that you can pay for installments in a short time.
Factors That Determine Tenor
To determine a tenor, you also need to know the following factors:
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Large loan amount
As previously explained, the size of the loan amount can be a factor in determining the tenor provided by the lender. The greater the amount of loan submitted, usually, the bank or creditor will suggest taking a tenor in the long term. In fact, if the loan proposed is not too large, you can take a short tenor.
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Age of the borrower
Age can be a big factor in determining the tenor of credit or loans provided by creditors because the bank or lender will estimate your remaining productive age as a borrower (the debtor). The younger the age of the borrower, the longer the tenor can be given. On the other hand, the older the debtor's age, the shorter the loan tenor that can be given because of the short remaining productive age that is estimated.
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Earnings per month
Monthly income will also determine the installment tenor that you can take. The bank, as a creditor or lender, will also assess your ability to pay installments based on the monthly income you get. The ability to pay installments per month will determine the duration of the tenor that will be applied to the loan you apply for. The higher the monthly income you have, you can take a short tenor from the loan. On the other hand, if it is judged that your income is not large enough to pay monthly installments, you may be encouraged to take a longer tenor.
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Asset Amount
The borrower's or debtor's asset of ownership, such as a house, land, or vehicle, will also affect the tenor offered by the bank or other financial institution acting as a lender.
Tips for Choosing the Right Tenor
Before choosing a tenor for your financial needs, you can pay attention to the following tips:
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Choose a Legal Institution
Choose a financial institution registered with and supervised by financial regulators such as the Financial Services Authority (OJK), Bank Indonesia, and the Deposit Insurance Corporation (LPS).
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Find Interest Rate Information
Find out the interest rates of various financial institutions, prioritizing official financial institutions that offer low interest rates for loans and high interest rates for deposits. You can also find out the advantages and disadvantages of the products offered by each financial institution.
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Adjust to Your Financial Capacity
Make sure the tenor you choose matches your financial capabilities. Try to keep monthly installments under 30 percent of your income, as this will also be a factor for lenders when assessing your Debt Service Ratio (DSR).
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Consider your financial goals
Choose a tenor that aligns with your financial goals. For savings products, if you want to earn more interest, you can start with a 12-month or 1-year term. For loans, if you want to repay the loan quickly, you can choose a shorter term. However, if you want lower monthly installments, you can choose a longer term. However, keep in mind that a longer term will result in a higher total interest rate.
Application for Credit and Deposit at Bank MAS
For those of you who want to apply for a loan or credit, both borrowing and business capital, investment credit, and personal loans, you can apply at Bank MAS by visiting the nearest branch office where you live.
For those of you who want to save deposit funds, you can also open a deposit account at Bank MAS with an attractive tenor and deposit interest rate. You just need to come to the nearest Bank MAS branch office where you live.