Taking a personal loan has become very common today for weddings, home renovation, medical emergencies or even big shopping. But the biggest confusion while taking a loan is deciding how many years of EMI to choose.
One year, three years or five years? If you choose the wrong tenure, either your monthly budget will be empty or you’ll end up paying a huge amount in total interest. Let’s understand in simple words how to decide the perfect tenure for yourself.
First Understand This: Short Tenure vs Long Tenure
Short Tenure (1–2 years)
- EMI will be high, but total interest to be paid will be very low
- Example: On a ₹5 lakh loan with 12 percent interest → total interest in 2 years is about ₹66,000
- Higher monthly load, but the loan finishes quickly and you save money
Long Tenure (4–5 years)
- EMI will be low and comfortable every month
- But the total interest becomes double or triple
- On the same ₹5 lakh loan, total interest in 5 years is about ₹1.65 lakh (almost ₹1 lakh extra)
Meaning: The shorter the tenure, the less interest you pay. The longer the tenure, the more interest you pay.
How To Decide Your Perfect Tenure?
Check how much EMI you can afford every month
EMI should not exceed 35–40 percent of your salary or it will affect your other expenses.
Calculate the total interest you will pay
Every bank provides a calculator. Enter the numbers and compare the difference between 2 years and 5 years.
Think about your future expenses
Wedding? Child’s education? New house? If big expenses are coming soon, choosing a lower EMI is safer.
Check if prepayment is allowed
If the bank doesn’t charge for prepayment, choose a longer tenure and close it early when you get extra money. Best of both sides.
Real Example
₹5 lakh loan @ 12 percent interest
| Tenure | EMI | Total Interest | Total Payment |
|---|---|---|---|
| 2 years | ₹23,550 | ₹65,000 | ₹5.65 lakh |
| 3 years | ₹16,600 | ₹98,000 | ₹5.98 lakh |
| 5 years | ₹11,100 | ₹1.66 lakh | ₹6.66 lakh |
Taking 3 extra years means paying around ₹1 lakh more in interest.
Quick Tips To Remember
- If your salary is good and you’re saving comfortably → choose 1–3 years, you’ll save interest
- If money gets tight at the end of the month → choose 4–5 years, but try to make extra payments
- Always choose a loan that allows prepayment
- If interest rate is low, a slightly longer tenure is fine
- Never go beyond 5 years (unless the loan amount is very large)
Final Note
Taking a loan is not wrong, but choosing the wrong tenure is a big mistake. Check your salary, expenses and future plans before deciding. If you are confused, try two or three options in the bank calculator. In five minutes you’ll know what’s best.
