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Impact of Interest Rate on your EMIs

Impact of Interest Rate on your EMIs

You quickly need to arrange Rs 5 lac for some urgent personal need. You go to your bank and tell them your requirement. They are ready to give you a loan at 16% rate of interest for 3 year tenor.

But you have another offer from another lender who is ready to give you the loan at 14% rate of interest. You think that what difference will 1% make? After all, you existing bank gives you a lot of conveniences.

But that is not the right approach. Lets calculate the EMIs in both cases and you will know why.

Loan 1 (@16%) – EMI is Rs 14,170 (Total Repayment Amount = Rs 6.8 lac)

Loan 2 (@14%) – EMI is Rs 13,663 (Total Repayment Amount = Rs 6.55 lac)

As you can see, a small difference in EMI of around Rs 500 means a difference of more than Rs 25,000 in total amount. This difference is almost equal to two EMIs itself. Isn’t it?

So interest rate do make a big difference on your total interest outgoes. It might not look like that if you only focus on EMIs. But use online personal loan EMI calculators and you will know exactly what is being highlighted here.

Remember that EMIs are calculated on the basis of following:

  • Final Loan Amount
  • Interest Rate
  • Loan Tenure

So lower the loan amount, lower the EMI. Lower the interest rate, lower the EMI. And lower the tenor, lower the EMI.

Let us look at various EMIs (and total repayment amount) for different interest rates on Rs 5 lac loan taken for 3 years:

12% Interest Rate: EMI is Rs 16,607 (Total Amount to be repaid is Rs 5.98 lacs)

13% Interest Rate: EMI is Rs 16,847 (Total Amount to be repaid is Rs 6.06 lacs)

14% Interest Rate: EMI is Rs 17,089 (Total Amount to be repaid is Rs 6.15 lacs)

15% Interest Rate: EMI is Rs 17,333 (Total Amount to be repaid is Rs 6.23 lacs)

16% Interest Rate: EMI is Rs 17,579 (Total Amount to be repaid is Rs 6.32 lacs)

17% Interest Rate: EMI is Rs 17,826 (Total Amount to be repaid is Rs 6.41 lacs)

18% Interest Rate: EMI is Rs 18,076 (Total Amount to be repaid is Rs 6.50 lacs)

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