A loan is money borrowed from a lender and repaid over an agreed period, with interest. The amount borrowed is called the principal, the period over which it is repaid is the tenure, and interest is the price of borrowing.
Most loans are repaid through EMIs (equated monthly instalments). Each EMI covers part of the interest and part of the principal. In the early instalments a larger share goes towards interest, and later more goes towards the principal. A longer tenure usually lowers each instalment but increases the total interest paid over the life of the loan.
How each instalment is split
- Equal instalmentsA loan is repaid in the same amount every month.
- Early on, mostly interestWhen the balance is large, most of each instalment pays for borrowing.
- Later, mostly the loan itselfAs the balance shrinks, more of each instalment pays down what you borrowed.
- Same size, different splitOnly the split changes. Try the EMI Calculator to see your own illustration.
An illustration of the idea, not a quote. The exact split depends on the loan's rate and length.
Common types include home, personal, vehicle, education and business loans. Each has its own purpose, repayment period and conditions. Some loans are secured, meaning an asset such as a home or vehicle backs the loan. Others are unsecured and rely on the borrower's income and credit history.
Lenders typically look at income, existing obligations, credit history and the documents provided when deciding on an application. The interest rate may stay fixed for the whole term or may change over time with a benchmark. Fees such as processing, late-payment or prepayment charges can apply, and the loan agreement sets these out.
The EMI Calculator on this site shows an illustrative instalment for different amounts and tenures. Dhimson Cover does not lend, arrange or compare loans. Speak to a lender directly about your own application.
Key points
- Principal, interest and tenure are the three building blocks of any loan
- Each EMI is part interest and part principal, and the split changes over time
- A longer tenure lowers the instalment but usually raises the total interest paid
- Home, personal, vehicle, education and business loans are different products
- Fees, charges and prepayment terms are set out in the loan agreement
General information only — not financial, legal or tax advice. Dhimson Cover does not sell, arrange, compare or recommend any product. Rules, terms and conditions differ between providers and change over time, so always read the provider's own documents or the official source.