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How Personal Loan Interest Rates Affect Your Loan Tenure & EMIs?
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Wondering how interest rates affect your loan tenure and EMIs? Read on
Interest rates play a big role in determining your loan EMI and tenure. It is the percentage of the loan amount that you will pay in addition to the principal amount. Depending on your credit score, income, age, and other factors, the interest rate will differ for everyone. So, how does this interest rate affect your overall loan tenure and EMI exactly? Keep reading to find out!
How interest rates affect your personal loan tenure?
A longer loan tenure entails a lower monthly payment but a higher interest cost in total. Whereas shorter tenure means a higher monthly payment but less overall interest as your loan is repaid faster.
For example, if you have a personal loan of Rs 2,00,000 at a 6.5% interest rate and you choose to repay the loan over a period of 2 years, you will end up paying Rs 8909 per month. However, if you choose the repayment tenure to 3 years, your monthly payments will drop to Rs 6130, but you will need to pay additional interest on the remaining balance for that 1 additional year. So, if the interest rate on your loan is high and you have other financial obligations as well, you may have to choose a longer repayment tenure.
How interest rates affect your personal loan EMIs?
A minor difference in interest rates can significantly impact monthly EMIs. Here is how:
Let’s say you take out a personal loan of Rs. 1 lakh at 6.5% interest. Here, the monthly repayment would be Rs. 3065. However, if the personal loan interest rate was fixed at 10%, the monthly repayment would increase to Rs. 3227 - an increase of Rs. 162 per month. While this may not seem like a lot, it can add up over time. In fact, for a 5-year loan, the total interest paid would be Rs. 27,482 with a 10% interest rate. Whereas at 6.5%, it would have been around Rs. 17,397.
Use an online calculator to calculate monthly interest
It's always a good idea to use a personal loan EMI calculator to see how different interest rates and terms will affect your monthly payments. Most reputed lenders like Kotak provide a personal loan EMI calculator on their website to allow borrowers to get accurate EMI value and plan repayment accordingly.
Additional Read: Here's How Kotak Bank's Personal Loan EMI Calculators Help You Get Accurate Estimations - Explained!
Simply go to the Kotak Mahindra Bank website and locate the calculator section. Input the loan amount, interest rate and repayment term, after which the tool will give you an estimate of your monthly EMIs that will go towards your loan.
After making the right calculations, you can confidently click on the Personal Loan Apply button and plan your repayment schedule.
Closing thoughts
The personal loan rate you are offered will affect both your monthly payments and the repayment tenure, so it's important to find the best rate possible. However, there are also other factors to consider, such as personal loan eligibility, offers from different lenders, additional fees, etc., before making a decision.
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