The ₹6 Lakh Mistake Most Borrowers Make
❌ Why Most Loan Comparisons Go Wrong
When people compare loans, they usually make these critical mistakes:
❌ Pick the lowest EMI
Banks advertise EMIs because they look affordable. But lower EMI often means longer tenure and more interest paid.
❌ Ignore processing fees
A 2% processing fee on a ₹50 lakh loan is ₹1 lakh upfront — often ignored in comparisons.
❌ Ignore interest paid over long tenures
On 20-year loans, you pay more in interest than principal in the first 10 years.
❌ Ignore what happens if they close the loan early
Most borrowers prepay, refinance, or sell before loan maturity. Yet no one checks early exit costs.
❌ Ignore risk from floating interest rates
A 1% rate increase can add ₹3-5 lakhs in interest over 10 years on a ₹50 lakh loan.
EMI alone does not show the true cost of borrowing. You need a complete comparison.
🔍 What You Should Compare in Any Loan
A proper loan comparison must include five core factors. Let's break down each one.
1️⃣ Monthly EMI (Cash Flow Impact)
EMI decides:
- ✅ How comfortable your monthly budget will be
- ✅ Whether you can manage EMIs during emergencies
However:
- ⚠️ Lower EMI often means longer tenure
- ⚠️ Longer tenure means more interest paid
💡 Key Point: EMI is important, but not sufficient for decision-making.
2️⃣ Total Interest Paid (True Cost)
Two loans with similar EMIs can have very different total costs.
Real Example:
The difference is ₹6 lakh, even though EMI difference is just ₹2,000/month.
👉 Always compare total interest, not just EMI.
3️⃣ Holding-Period Cost (Most Ignored Factor)
This is the factor most people miss — and where they lose the most money.
Most borrowers:
- Prepay their loan
- Refinance to a better rate
- Sell the house/car
- Close the loan early
Yet almost no one checks:
- ❌ How much they will pay in the first 5–10 years
- ❌ Outstanding balance at exit
- ❌ Foreclosure charges
Critical Insight
👉 Always compare cost up to your expected holding period, not full tenure.
Calculate Your Holding Period Cost
See exactly how much you'll pay if you exit after 5, 7, or 10 years.
4️⃣ Interest Rate Risk (Fixed vs Floating)
🔒Fixed Interest Loans
- ✅ Stable EMI throughout tenure
- ✅ Lower risk
- ✅ Peace of mind
- ⚠️ Often slightly higher initial rate
📈Floating Interest Loans
- ✅ Lower initial rate
- ✅ Can benefit if rates fall
- ⚠️ EMI can increase if rates rise
- ⚠️ Risk during economic cycles
Rate Increase Impact
- • Rate reset frequency (monthly/quarterly)
- • Impact of even 1% rate increase
- • Historical rate volatility in India
👉 Compare EMI stability, not just starting rate.
5️⃣ Fees, Penalties & Flexibility
Hidden costs can add lakhs to your loan burden. Always check these details.
Hidden Costs to Check:
| Cost Type | Typical Range | Impact on ₹50L Loan |
|---|---|---|
| Processing Fees | 0.5% - 2% | ₹25,000 - ₹1,00,000 |
| Prepayment Penalty | 0% - 3% | ₹0 - ₹1,50,000 |
| Foreclosure Charges | 2% - 4% | ₹1,00,000 - ₹2,00,000 |
| Insurance (bundled) | 0.3% - 0.5% p.a. | ₹15,000 - ₹25,000/year |
Flexibility Features to Check:
Loan Flexibility Checklist
- Is part-prepayment allowed without penalty?
- Can EMI be reduced instead of tenure after prepayment?
- Are there lock-in periods?
- Can you switch from floating to fixed rate later?
- Is there an EMI moratorium option during financial stress?
👉 Flexible loans often save money in the long run, even if they cost slightly more upfront.
🧮 How a Loan Comparison Calculator Helps
Instead of manually tracking all these factors, a good loan comparison calculator does the work for you.
What a Good Calculator Does:
Compares Multiple Loans Side-by-Side
Includes All Costs
Shows Holding-Period Cost
Simulates Rate Changes
Highlights the Best Option
Why Our Calculator Is Different
Our loan comparison calculator is designed for decision clarity, not just numbers.
What it does:
- ✅ Compare up to 4 loan offers
- ✅ Show EMI, total cost, and early-exit cost
- ✅ Compare fixed vs floating loans
- ✅ Include fees and insurance
- ✅ Provide a loan score based on cost, risk, and flexibility
What it avoids:
- ❌ Bank bias
- ❌ Promotional rankings
- ❌ Hidden assumptions
Ready to Compare Your Loans?
Use our calculator to see which loan actually saves you money.
Compare Your Loans
Don't guess which loan is better. Use this quick calculator to see the real difference between two loan options, or open the full version to compare up to 4 loans with advanced features.
🧠 How to Choose the Best Loan (Simple Rule)
Use these thumb rules to guide your decision:
If income is stable →
You can consider lower-cost options with slightly higher EMI. Focus on minimizing total interest.
If income is uncertain →
Prioritize EMI stability. Choose fixed-rate loans or longer tenures with lower EMI.
If you plan to close early →
Focus on holding-period cost, not 20-year totals. Check prepayment and foreclosure terms.
If rates are low →
Floating rate loans may save money. But stress-test for 2-3% rate increases.
If rates are volatile →
Fixed-rate loans offer peace of mind. Worth paying a small premium for stability.
💡 Key Point: A calculator helps you test these scenarios safely before committing.
🏠 Types of Loans You Can Compare
The comparison logic works for all types of loans. You can use this tool to compare:
🏠Home Loans
Compare rates, tenure, and prepayment options across banks
🚗Car Loans
Find the cheapest auto loan for your budget
💼Personal Loans
Compare unsecured loan offers from multiple lenders
🎓Education Loans
Find the best loan for your study abroad or domestic education
🔒Fixed vs Floating
Compare rate types within the same loan category
🏦Bank vs NBFC
Compare traditional banks with non-banking finance companies
The comparison logic remains the same across all loan types: total cost, holding period, and flexibility matter more than just EMI.
📊 Real Example: EMI vs Total Cost
Let's see how two seemingly similar loans can have vastly different costs.
Scenario: ₹50 Lakh Home Loan
Loan A: Lower EMI
Loan B: Slightly Higher EMI
💡 The Verdict:
Loan B has EMI that's ₹2,626/month higher, but saves you ₹17,76,840 in interest!
If the extra ₹2,626 EMI is affordable, Loan B is clearly better. Without comparison, this difference is invisible.
This is why EMI alone is a terrible metric for comparison. Always look at the full picture.
❓ Frequently Asked Questions
Q: Is the lowest EMI loan the best?
No. Lower EMI often increases total interest paid and extends your debt burden. Compare total cost, not just monthly payments.
Q: Should I always choose floating interest loans?
Not necessarily. Floating loans carry risk during rate hikes. If rates increase by 2-3%, your EMI and total cost can increase significantly. Fixed loans offer stability.
Q: Can I compare loans with different tenures?
Yes. A proper comparison tool normalizes the results by showing total cost, holding-period cost, and per-month burden for each option.
Q: Should I include fees in my comparison?
Always. Processing fees, insurance, and prepayment penalties can add ₹1-2 lakhs to your total cost. They can change which loan is actually cheaper.
Q: What if I plan to prepay my loan?
Then holding-period cost matters more than 20-year totals. Check how much you'll pay in the first 5-10 years, and ensure there are no prepayment penalties.
Q: How much EMI can I afford?
As a thumb rule, your EMI should not exceed 40% of your monthly income. Ideally keep it under 30% to handle emergencies comfortably.
✅ Ready to Make a Confident Loan Decision?
Before you finalize any loan, compare it properly. Use our calculator to see which loan is cheapest, safest, and suits your financial situation best.
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