What is EMI?
EMI (equated monthly installment) is the fixed amount you pay every month. Each payment covers that month's interest and repays part of the loan. Early payments are mostly interest; later ones are mostly loan.
Example: Rs 25 lakh at 14% for 5 years
The installment is about Rs 58,171 a month. Over 60 months you pay Rs 34,90,238, of which Rs 9,90,238 is interest. Stretch the same loan to 7 years and the installment falls, but total interest rises a lot.
How much can you afford?
Banks look at your debt burden ratio: the share of income that goes to loan installments, often capped around 40–50%. With a take-home income of Rs 2,50,000 and no other loans, a 40% limit allows an installment of Rs 1,00,000. At 16% over 5 years, that supports a loan of about Rs 41 lakh. Add your down payment to see the price you can afford.
Five ways to pay less
- Put down more. Every rupee of down payment is a rupee you don't pay interest on.
- Choose the shortest tenure you can manage.
- Compare the total cost, including processing fees and insurance, not just the rate.
- Ask about fixed vs variable rates. Variable rates linked to KIBOR change your installment when rates move.
- Pay extra when you can. Ask the bank about part-payment charges first.
Islamic banks offer car and home financing through ijarah and diminishing musharakah; the monthly payment works in a similar way.