EMI for ₹10 LakhCar Loan: 9.5% for 5 Years

₹2,60,112 of interest: 26% of the ₹10 Lakh borrowed

You borrow ₹10.00 L and, at 9.5% over 5 years, repay ₹12.60 L in 60 monthly instalments of ₹21,002. The extra ₹2.60 L is interest: roughly 26% of the amount you borrowed. On a long loan the interest can rival the principal itself, which is why the tenure you pick matters as much as the rate.

In year one, ₹87,979 goes to interest; ₹1,64,043 cuts the principal

In year one, ₹87,979 of your EMIs goes straight to interest and only ₹1.64 L chips away at the ₹10.00 L principal. That is because interest is charged on the outstanding balance, which is highest at the start. As the balance falls, each EMI shifts gradually from interest-heavy to principal-heavy: the amortization effect. A prepayment in these early years removes principal before years of interest can accrue on it, so it saves far more than the same amount prepaid later.

Dropping from 7 to 3 years saves ₹2,19,708 in interest

The monthly EMI looks smaller on a longer tenure, but the total interest climbs steeply. Dropping from 7 years to 3 years on this ₹10 Lakh car loan raises the EMI from ₹16,344 to ₹32,033, but cuts total interest from ₹3.73 L to ₹1.53 L, a saving of about ₹2.20 L. Pick the shortest tenure whose EMI stays comfortably under 40% of your monthly income.

Step up the EMI, prepay early, shorten the tenure, compare lenders

• Step up the EMI: raising your EMI by 5–10% each year as income grows can shave years off the loan.
• Prepay early: lump sums from bonuses in the first few years save the most, since interest is front-loaded.
• Shorten the tenure: the EMI difference is often manageable; the interest saving is large.
• Compare lenders: even a 0.25% lower rate on a large, long loan saves a meaningful amount over the full term.