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Impact of Loan Tenor on Personal Loan EMIs

Impact of Loan Tenor on Personal Loan EMIs

If give a chance, you will never want to take a loan. Isn’t it? After all, who wants to pay interest for borrowing? But in times of need, you might be forced to take a loan.

Even when people take a loan, their main focus is on getting the lowest possible EMI that they can manage. Though it might seem like a smart thing to do, fact is that it is not.

It is true that longer the tenor, lower will be the EMIs. But it is also true that longer the tenor, higher will be the total interest you pay over the course of loan.

Sounds odd? See it for yourself.

Suppose you decide to take a Rs 5 lac personal loan. The lender is ready to give you the loan at 15%. But you need to decide the tenor. Lender tells you that you can take a loan with lower EMIs if you increase the tenor. He shows you the following:

EMI for 3 years – Rs 17,333

EMI for 4 years – Rs 13,915

EMI for 5 years – Rs 11,895

Obviously you would want to go for lower EMIs. But the lender has forgot to tell you a very important information about each of the option above. Let us tell you that critical piece of information:

EMI for 3 years – Rs 17,333 (Total Interest Paid – Rs 1.23 lacs)

EMI for 4 years – Rs 13,915 (Total Interest Paid – Rs 1.68 lacs)

EMI for 5 years – Rs 11,895 (Total Interest Paid – Rs 2.13 lacs)

So as is clearly obvious from data above, the total interest paid increases with increase in loan tenor. So even if you get lower EMIs, you end up paying more interest.

So if you genuinely don’t have the monthly surplus to service a large loan EMI, then its fine to take a loan with longer tenor and lower EMI. But if you are comfortable shelling out more for EMIs every month, make it a point to take the loan with shortest possible tenor to save on interest costs.

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