EMI for ₹20 LakhCar Loan: 9.5% for 7 Years

₹7,45,789 of interest: 37% of the ₹20 Lakh borrowed

You borrow ₹20.00 L and, at 9.5% over 7 years, repay ₹27.46 L in 84 monthly instalments of ₹32,688. The extra ₹7.46 L is interest: roughly 37% 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, ₹1,80,957 goes to interest; ₹2,11,299 cuts the principal

In year one, ₹1.81 L of your EMIs goes straight to interest and only ₹2.11 L chips away at the ₹20.00 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 ₹4,39,417 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 ₹20 Lakh car loan raises the EMI from ₹32,688 to ₹64,066, but cuts total interest from ₹7.46 L to ₹3.06 L, a saving of about ₹4.39 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.