Take 5 years, but don't keep it for 5 years
A 5-year loan moves slowly in the first year. Of Sanjay's first 12 EMIs, ₹52,284 goes as interest and only ₹59,404 reduces the loan, so after a full year he still owes ₹3,40,596. The interest share falls every year after that, because it is charged only on what is left.
The low EMI buys breathing room, and that is fine. But if his pay goes up and he closes the loan at the end of year 3 by paying the ₹1,93,850 still due, his total interest stops at ₹1,28,913. That is ₹29,525 less than running all 5 years. Before signing, ask the lender what it charges for closing early.
Frequently asked questions
What is the EMI on a ₹4 lakh loan for 3 years?
At 14%, the 3-year EMI is ₹13,671. Interest comes to ₹92,158 and you repay ₹4,92,158. That is ₹66,280 less interest than the 5-year loan, for ₹4,364 more each month.
How much is the 4-year EMI on ₹4 lakh?
At 14% for 4 years, the EMI is ₹10,931 and the interest is ₹1,24,668. It sits between the two usual choices. On a ₹32,000 salary it takes about 34% of the pay.
Why is the example rate 14% and not 12%?
Lenders often charge more on small unsecured loans and modest salaries. At 12%, the same ₹4 lakh for 5 years would have an EMI of ₹8,898 and interest of ₹1,33,867, about ₹24,600 less. Ask more than one lender for a quote.
Can I repay ₹4 lakh in 1 or 2 years?
Yes, if the EMI fits. At 14%, 1 year means ₹35,915 a month with ₹30,978 interest, and 2 years means ₹19,205 a month with ₹60,924 interest. Both need an income well above ₹32,000.
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