What is EMI and How Does It Work?
EMI (Equated Monthly Installment) is the fixed amount you pay your lender every month until the loan is fully repaid. It includes two parts:
- Principal – the actual loan amount borrowed.
- Interest – the cost charged by the bank for lending you the money.
The formula used to calculate EMI is: EMI=P×r×(1+r)n(1+r)n−1EMI = \frac{P \times r \times (1 + r)^n}{(1 + r)^n – 1}EMI=(1+r)n−1P×r×(1+r)n
Where:
- P = Loan Amount (₹20,00,000)
- r = Monthly Interest Rate (Annual Rate ÷ 12)
- n = Loan Tenure in Months (3 years = 36 months)
EMI for a ₹20 Lakh Loan for 3 Years
Since interest rates vary across banks and lenders, let’s consider examples with different rates.
- At 10% per annum: Approx. ₹64,500 per month
- At 12% per annum: Approx. ₹66,430 per month
- At 14% per annum: Approx. ₹68,600 per month
This means your EMI will range between ₹64,000 – ₹69,000 per month, depending on the lender.
Factors That Affect Your EMI
- Interest Rate: Higher rates mean higher EMI.
- Loan Tenure: Shorter tenure increases EMI but reduces total interest.
- Credit Score: A good score (750+) helps secure lower interest rates.
- Type of Lender: Banks, NBFCs, and online lenders all offer different rates.
- Prepayment Options: Making part-prepayments can reduce EMI burden.
How to Reduce EMI on a ₹20 Lakh Personal Loan
- Improve Your Credit Score: Aim for 750+ for better loan offers.
- Compare Lenders: Always check interest rates across banks.
- Choose Longer Tenure: Though total interest is higher, monthly EMI reduces.
- Negotiate with Bank: Existing customers often get preferential rates.
- Make Prepayments: Paying extra reduces outstanding balance.
Example Repayment Schedule (₹20 Lakh Loan, 3 Years, 12% Interest)
| Year | Opening Balance | EMI (Annual) | Principal Paid | Interest Paid | Closing Balance |
|---|---|---|---|---|---|
| 1 | ₹20,00,000 | ₹7,97,160 | ₹5,20,800 | ₹2,76,360 | ₹14,79,200 |
| 2 | ₹14,79,200 | ₹7,97,160 | ₹5,83,400 | ₹2,13,760 | ₹8,95,800 |
| 3 | ₹8,95,800 | ₹7,97,160 | ₹6,52,800 | ₹1,44,360 | ₹0 |
This shows how EMI repayment gradually reduces interest portion and increases principal repayment.
Final Thoughts
Taking a ₹20 lakh personal loan for 3 years can help you meet major expenses, but always plan your EMI carefully. Compare lenders, calculate repayments in advance, and maintain a good credit score to enjoy the lowest EMI possible.
By understanding how EMI works and using smart strategies, you can manage your loan efficiently without financial stress.
FAQs
1. What will be the EMI for a ₹20 lakh loan for 3 years?
Depending on the interest rate, EMI will be around ₹64,000 – ₹69,000 per month.
2. Can I reduce my EMI after taking the loan?
Yes, by making prepayments, transferring your loan to a lower-interest lender, or negotiating with your bank.
3. Is a 3-year tenure good for a ₹20 lakh loan?
Yes, it allows faster repayment with moderate EMI. However, if you want lower EMI, choose a longer tenure.
4. Which bank offers the lowest EMI on a ₹20 lakh personal loan?
It depends on your credit profile. Public and private banks, as well as NBFCs, offer competitive rates—always compare before applying.
5. Can NRIs or U.S. citizens apply for loans in India?
Yes, many banks offer NRI personal loans with conditions. U.S. citizens of Indian origin can also apply if they meet eligibility.