How Loan Repayment Works
A loan repayment schedule (amortization) breaks each EMI into principal and interest components. In the early months, most of your payment goes toward interest. As the outstanding balance reduces, an increasing portion goes toward principal repayment.
Loan EMI Formula
EMI = P × r × (1+r)^n ÷ [(1+r)^n − 1]
r = Monthly rate (Annual rate ÷ 12 ÷ 100) | n = Months
r = Monthly rate (Annual rate ÷ 12 ÷ 100) | n = Months
Impact of Tenure on Total Cost
| Loan: ₹5L at 12% | Monthly EMI | Total Interest |
|---|---|---|
| 3 years | ₹16,607 | ₹97,850 |
| 5 years | ₹11,122 | ₹1,67,337 |
| 7 years | ₹8,693 | ₹2,30,197 |
| 10 years | ₹7,164 | ₹3,59,712 |
Strategy: If you can afford 20% higher monthly payments, choose a shorter tenure. The interest savings are dramatic — often 2–3× the initial sacrifice in monthly cash flow.