Compare two loan options side-by-side. Evaluate EMI amounts, total interest payable, and total cost to choose the most cost-effective loan.
Plan A has a lower total interest payout.
Most modern retail loans (Home, Personal, Auto) are calculated using the reducing balance method. With every monthly EMI payment, a portion goes toward reducing the principal amount.
This means subsequent interest compounding is calculated only on the remaining principal balance, resulting in smaller interest costs in later years.
A longer tenure drops your monthly EMI burden, which is beneficial for cash flow. However, it drags out the repayment period, resulting in a much higher cumulative interest expense.
When comparing loans, try to keep the tenure as short as comfortably possible for your budget. Minimizing the interest rate is critical: even a 0.25% drop saves massive sums over 20 years.
Two loans with identical EMIs can have very different total costs once prepayment is factored in. Most floating-rate retail loans in India (RBI mandate) carry zero foreclosure or part-prepayment penalty, meaning any surplus cash you direct toward the principal directly cuts down the outstanding balance and the interest calculated on it going forward.
When comparing Plan A and Plan B, check whether either lender charges a prepayment penalty (common on fixed-rate loans, typically 2-4% of the outstanding amount). A loan with a marginally higher rate but zero prepayment charges can end up cheaper than a lower-rate loan that locks you in, if you plan to pay off early.
This calculator assumes a fixed rate for the full tenure, which is accurate for personal and auto loans but often not for home loans, where lenders typically offer a floating rate linked to an external benchmark (Repo Rate / EBLR). A floating-rate EMI you enter today is only a snapshot; the real EMI will move as the benchmark rate is revised.
When comparing a fixed-rate offer against a floating-rate offer, don't just compare today's EMI. Factor in the fixed rate's premium (usually 1-2% higher) against the risk that floating rates could rise over a 15-20 year tenure, and check whether the floating loan resets your tenure or your EMI when rates change.
A lower EMI or lower headline rate doesn't always mean a cheaper loan. Processing fees (typically 0.5%-2% of the loan amount), mandatory insurance add-ons, legal/valuation charges, and administrative fees can add tens of thousands of rupees to the effective cost of borrowing, and these vary significantly between lenders.
When two loan plans show a similar total repayment in the matrix above, request the Annual Percentage Rate (APR) or a full cost breakup from each lender — this single number bakes in fees alongside interest and is the fairest way to compare Plan A against Plan B.
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