Personal loan EMIs: How can a small difference of 1 to 2% in rate of interest impact your EMIs?
Being an unsecured loan, personal loan carries a higher rate of interest. Usually, banks charge anywhere between 11 to 18 percent per annum on personal loans.
A personal loan comes handy when you are in urgent need of money. Let us suppose, you need funds for organising a wedding or for home renovation, or there is tuition to be paid for your ward who is studying in a boarding school and your financial situation is slightly bad. In such scenarios and more, all you can do is to raise a personal loan.
Notably, a personal loan is an unsecured loan and therefore, it has a higher rate of interest. Usually, banks charge anywhere between 11-18 percent per annum on personal loans.
But have you ever realised that a small difference in the interest rates can bring down the EMI amount considerably.
Here, we showcase how a small difference in personal loan – say 1 per cent – can reduce your EMI outgo to a great extent.
Let us suppose, you have taken a personal loan amounting to ₹15 lakh and you want to repay the loan in a span of three years. One bank is charging 10 percent, the other is charging 11 percent, while the third one charges 12 percent.
| Interest | EMI (Rs) | Difference (Rs) |
|---|---|---|
| 10 percent: | 48,400 | -- |
| 11 per cent: | 49,108 | 708 |
| 12 per cent: | 49,821 | 713 |
| Total difference | 1,421 | |
This will be the amount of monthly instalment in these scenarios:
When the interest rate is 10 percent, the EMI will be ₹48,400. As the interest rate spikes to 11 percent, the EMI will increase to ₹49,108.
| Rate of interest | Total interest (Rs) | Difference (Rs) |
|---|---|---|
| 10 percent | 2,42,428 | - |
| 11 percent | 2,67,890 | 25,462 |
| 12 percent | 2,93,572 | 25,682 |
| Total difference | 51,144 | |
And when the rate of interest increases to 12 percent, the loan EMI will further increase to ₹49,821. In other words, when the rate of interest is 11 percent, your monthly instalment increases by ₹708. When it further rises to 12 percent, the EMI spikes by a total of ₹1,421, as the first table above reveals.
In terms of interest, the total difference can be as high as ₹51,144 when the rate increases to 12 percent from 10 percent. When it increases to 11 percent, the total interest outgo would increase by ₹25,462.
In other words, when the rate of interest is 12 percent, your total interest liability will increase to ₹2.93 lakh instead of ₹2.42 lakh when interest is 10 percent.
To sum up, it is recommended to look for the best personal loan offer which you can grab so that you can keep the interest outgo at the bare minimum level.
(Note: Raising a loan comes with its own risks. So, due caution is advised.)
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.