Worked Example
What is the EMI and total interest on a ₹15 lakh loan at 10% over 7 years?
Scenario
Student starting career at age 23 with ₹15 lakh education loan
Inputs
- Rate %
- 10
- Tenure years
- 7
- Loan amount INR
- 15,00,000
Calculation
- 1.
Monthly rate
10% / 12 → 0.83%
- 2.
Monthly EMI
P×r×(1+r)^n / ((1+r)^n − 1) → ₹24,902
- 3.
Total paid over tenure
EMI × 84 → ₹20.92 L
- 4.
Total interest
Total paid − Principal → ₹5.92 L
- 5.
Interest-to-principal ratio
Interest ÷ Principal → 0.39x
Conclusion
EMI of ₹24,902/month over 7 years; total interest ₹5.9 lakh — 39% of principal.
Tradeoffs
Reducing-balance method; flat-rate quotes look cheaper but cost the same. Prepaying in early years saves disproportionate interest (₹5L early-year prepay can save ₹15L+ in interest vs late-year). Tax deductions (Section 24/80EEA for home loans) reduce effective rate by 25-35% in 30% slab old regime.