One key advantage of opting for a longer loan tenure is the reduction in monthly EMI payments.
With a smaller EMI, borrowers can manage their household expenses more comfortably, avoiding financial strain.
Drawbacks of Extending Loan Duration
However, a longer loan tenure also has its downsides. It means the repayment period stretches over many years, keeping borrowers tied to EMI payments for a longer time.
Moreover, this extended period results in significantly higher interest payments to the bank, making the overall loan cost much more expensive.
Short Tenure vs. Long Tenure: A Practical Example
For instance, taking a home loan of Rs 30 lakh for 15 years at an interest rate of 9.55% will result in a monthly EMI of Rs 31,417.
Over 15 years, the total interest paid will be Rs 26,55,117, bringing the total repayment amount to Rs 56,55,117.
On the other hand, opting for the same loan amount over 30 years reduces the EMI to Rs 25,335. However, the interest paid over this period skyrockets to Rs 61,20,651.
Including the principal, the total repayment will be Rs 91,20,651—over three times the original loan amount.
This demonstrates that while smaller EMIs are an advantage of a long tenure, the overall cost of the loan increases significantly due to higher interest payments.
How to Handle Long Loan Tenures
If your loan tenure is long and you’re concerned about high costs, here are two strategies to reduce the overall burden:
Increase Your EMI: If your financial situation allows, consider raising your EMI amount. This reduces the loan duration and cuts down the total interest paid.
Make Prepayments: Another option is to make lump sum prepayments whenever possible. This reduces the principal amount, which in turn lowers the interest.
Once the balance is reduced, you can restructure the loan with higher EMIs to pay it off quicker.
