EMI Planning: ₹5 Lakh or ₹7 Lakh Loan? Check the EMI Burden Before You Decide

Personal loans can offer a solution for urgent financial needs, whether for weddings, medical emergencies, home renovations, or debt consolidation. But while getting approval might be easy, repayment is where the challenge lies.

The difference between borrowing ₹5 lakh and ₹7 lakh may not seem significant upfront, but it can substantially impact your monthly budget. This is where an EMI calculator becomes your best ally, helping you make informed choices before taking the plunge.

₹5 Lakh vs. ₹7 Lakh Loan: Why the Gap Matters?

At a fixed interest rate of 13% (assumption), the EMI for a ₹5 lakh loan is considerably lower than that for a ₹7 lakh loan, yet both have long-term implications. While the additional ₹2 lakh may fulfill more immediate needs, it also stretches your repayment tenure or monthly EMI, depending on what you choose.

With higher EMIs, your monthly disposable income shrinks, potentially affecting lifestyle expenses, emergency savings, or even investments. If your income isn't increasing in tandem, this stretch can lead to financial stress.

The Impact on Your Monthly Budget

For a ₹5 lakh personal loan at 13% interest over 5 years, the monthly EMI comes to around ₹11,377, with a total repayment of ~₹6.83 lakh. This means you’ll end up paying about ₹1.83 lakh in interest over the tenure.

In comparison, a ₹7 lakh loan under the same conditions results in a monthly EMI of around ₹15,927, with a total repayment of roughly ₹9.55 lakh, incurring about ₹2.55 lakh in total interest.

The numbers clearly show how borrowing more not only increases your EMI but also significantly raises the total interest burden.

Let’s say your monthly income is ₹50,000. If you take a ₹5 lakh loan, your EMI might consume around 20–25% of your income. Bump the loan up to ₹7 lakh, and the EMI could eat up 30–32%, a sizeable chunk, especially when you factor in rent, groceries, bills, insurance, and other liabilities.

It’s crucial to maintain a healthy EMI-to-income ratio, ideally under 30%, to avoid falling into a debt trap. Over-borrowing not only increases financial strain but also limits your ability to handle unexpected expenses or future loans.

Alternatives to Reduce EMI Burden

If you have to borrow more than you need, consider these alternatives:

• Opt for a longer tenure: This reduces monthly EMIs, but increases total interest paid
• Part-prepayments: If your income increases or you receive a bonus, use it to reduce the principal
• Borrow only what’s necessary: Assess your needs honestly, don’t borrow for discretionary expenses
• Compare lenders: Different lenders may offer better rates, lowering EMI even on higher amounts

Also Read: EMI Planning: What Should Be Your EMI If You Earn ₹50,000 Per Month?

Conclusion

Personal loans are helpful, but only when used wisely. A small difference in the loan amount can have a big impact on your financial health. Use an EMI calculator to compare scenarios, understand affordability, and ensure you don’t overstretch your monthly budget. Remember, it’s not just about what you can borrow, it’s about what you can comfortably repay.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.