Why 12% does not mean ₹12,000 a year
Many people think a 12% loan of ₹1 lakh costs ₹12,000 every year. It does not, because each EMI repays part of the principal and interest is charged only on what is still outstanding. Over 1 year, total interest is ₹6,619, about 6.62% of the loan.
Over 3 years it is ₹19,572 and over 5 years ₹33,467. If an offer quotes a flat rate instead of a reducing balance rate, ask for the EMI and the total repayment in rupees and compare.
Frequently asked questions
What is the EMI for a ₹1 lakh loan for 1 year?
At 12%, the 1-year EMI is ₹8,885. You repay ₹1,06,619 over 12 months, so the interest is ₹6,619. It is the cheapest option in total cost if you can handle the monthly amount.
What is the EMI for ₹1 lakh for 5 years?
At 12%, it is ₹2,224 a month. That looks small, but you pay ₹33,467 in interest over 60 months, which is about a third of the loan.
How much do I save by choosing 2 years over 3 years?
The 2-year EMI is ₹4,707 against ₹3,321 for 3 years, ₹1,386 more each month. Interest falls from ₹19,572 to ₹12,976, a saving of about ₹6,600.
Is ₹3,321 the EMI for every ₹1 lakh loan?
No, only at 12% for 3 years. A different rate or tenure changes it. Put your lender's quoted rate in the calculator above to see your exact EMI and the interest over the full tenure.
