EMI Planning: Car Loan of ₹10 Lakh: 5 Yrs vs 7 Yrs – What’s Better for Your Budget?

Planning to buy a car and considering a loan of ₹10 lakh? One of the key decisions you’ll need to make is choosing the loan tenure.  

A common dilemma for borrowers is whether to opt for a shorter tenure like 5 years or go for a longer one, such as 7 years. Let’s break down how your monthly budget will be impacted by each choice, assuming a fixed interest rate of 12% per annum. 

EMI Comparison: 5 Years vs 7 Years 

For example, for a loan amount of ₹10 lakh at a 12% annual interest rate: 

For a 5-year loan tenure (60 months) on ₹10 lakh at 12% interest, the approximate EMI would be ₹22,244. Over the entire loan period, you would repay a total of ₹1,334,667, which includes ₹3,34,667 as the interest paid to the lender. 

In comparison, for a 7-year tenure (84 months), the EMI drops to approximately ₹17,653. However, the total repayment increases to ₹14,82,830, with the total interest paid being ₹4,82,830. While the monthly burden is lower, the extended tenure results in a higher total interest payout. 

As you can see, the 5-year tenure comes with higher monthly EMIs but saves you nearly ₹1.5 lakh in interest. Meanwhile, the 7-year loan gives you lower EMIs but results in a significantly higher interest payout over the full term. 

You can use the EMI Calculator to calculate the EMI for different figures and understand which can fit into your monthly budget.  

Which Option Fits Your Budget? 

Your decision should depend on your monthly income, existing financial obligations, and lifestyle needs. 

Can choose 5 Years If: 

• You have a stable income and fewer financial liabilities. 

• You want to pay off your loan faster and save on interest. 

• You’re comfortable with slightly higher EMIs in exchange for long-term savings.

Can choose 7 Years If: 

• You want lower EMIs to keep your monthly budget light. 

• You’re expecting your income to grow over time. 

• You want to maintain liquidity for emergencies or investments. 

Impact on Financial Planning 

Shorter tenure means faster repayment and better credit profile in the long run. Lenders often see quick loan closures as a sign of creditworthiness. Additionally, repaying your loan faster frees up your future income for other financial goals such as investing, saving for a home, or even taking a vacation. 

Longer tenure, on the other hand, offers more breathing room and flexibility in managing monthly cash flow.  

Also Read: Can You Buy a Motorcycle with a Credit Card?

Conclusion  

There’s no one-size-fits-all answer. A 5-year loan helps you save more on interest and become debt-free faster, while a 7-year term offers lower monthly strain. Use an EMI calculator to assess your repayment capacity and think long term. Whichever you choose, ensure it aligns with your financial comfort and goals. 

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.