How loan tenure impacts total interest paid: A real-life example

When you’re considering a personal loan, you may come across the flexible tenure ranges from lenders like FIRSTmoney by IDFC FIRST Bank. The longer the tenure, the lower will be your EMIs. However, a longer tenure also leads to higher overall interest payment. Choosing the tenure is one of the significant decisions that influences your overall borrowing experience. Learn all about its impact with an example in this article to make an informed selection. 

How does loan tenure affect total interest paid?  

The loan tenure you select shapes your repayments. How you adjust it has a direct impact on the interest, as explained below: 

When you opt for a longer repayment period, you may find the lower EMIs comforting. While they are manageable, stretching the loan means your interest keeps adding up over a long period. Naturally, this increases the total interest outgo. 

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A shorter tenure is typically appreciated as it lowers the perceived risk for lenders when you close the loan early. The EMI is higher, but it leads to lower total interest. So, if your financial situation allows, it is better to opt for a shorter tenure and save on the loan cost. 

You can see the effect discussed above in real-time with a personal loan calculator.  Try different tenure and loan amount combinations to see what fits your monthly budget.  

With FIRSTmoney personal loan by IDFC FIRST Bank, you can choose a tenure between 9 to 60 months. 

A real-life example to understand the impact of loan tenure on interest  

Let’s say apply for a personal loan of ₹5 lakh at an interest rate of 12% per annum, with tenure being the only variable that changes. 

You will notice how the EMI is higher, but the loan closes faster with a shorter tenure, as opposed to the ease of monthly pressure, but higher interest with a longer tenure. As you use a personal loan calculator to understand this, you will also get an amortization table giving you a snapshot of your repayment journey. 

Comparison of loan repayment period for a loan of ₹5 lakh at 12% p.a.: 

Tips to choose the right tenure on a personal loan 

Now that you know how tenure modifies the total interest you pay, you are in a better place to make a calculated selection. Here are some tips to make the decision easier: 

You should be able to comfortably manage EMIs with other everyday expenses, savings, and investments. Consider a higher EMI only if it doesn’t disrupt your monthly budget over the loan tenure. 

What seems manageable today might strain your finances tomorrow if you don’t account for future changes. This may include a job change, variable pay, new financial goals, or family responsibilities. 

Try to leave room for prepayments with a buffer. Setting some additional funds aside also helps manage EMIs during tight months. It gives you peace of mind in unexpected situations. 

When you’re in urgent need of funds, you may borrow without paying much attention to the specifics. This can cost you later. So, even if it is urgent, before you apply for a personal loan, take time to reflect on the loan terms. 

If you have ongoing EMIs or financial responsibilities that already compromise your disposable income, consider how the new loan will fit into the budget. Also, check how your eligibility gets affected due to existing debt. 

Final words  

Choosing the right tenure is about creating a balance between your desired EMI and the loan cost. FIRSTmoney personal loan by IDFC FIRST Bank offers flexible and transparent terms while offering benefits like:  

Moreover, the EMI calculator they provide is also helpful in narrowing down on realistic loan offer. Use these features to your advantage and choose a tenure you won’t regret. Once you get this decision right, management of EMI repayments is stress-free.