The ₹50,000 Monthly Installment: What Does It Really Mean?
Imagine you have taken a loan with a monthly installment (EMI) of ₹50,000, and you are committed to paying this amount every month for 30 years. At first glance, it sounds like a huge financial burden. Over 30 years, you will have paid:
₹50,000 × 12 months × 30 years = ₹1.8 crore
That’s a staggering ₹1.8 crore outflow. But the question is — how much is this ₹1.8 crore worth in today’s terms? Because money today is not the same as money tomorrow. Inflation steadily erodes the purchasing power of money over time.
Inflation: The Silent Game-Changer
Inflation is the rate at which the general level of prices for goods and services rises, leading to a decline in the purchasing power of currency. In India, inflation has historically fluctuated widely, but for this analysis, we assume a steady 10% annual inflation rate — a high but illustrative figure to understand the impact clearly.
When inflation is 10%, ₹100 today will only be able to buy what ₹90 could buy last year. This means that the real value of your future payments is less than their nominal value.
Calculating the Present Value of Your EMIs
To understand the real burden of your ₹50,000 monthly installment over 30 years, we calculate the present value of all future payments. Present value (PV) discounts future cash flows to today’s terms using the inflation rate as the discount factor.
The formula for present value of a future payment is:
PV = Future Payment ÷ (1 + inflation rate)number of years
Since you pay monthly, we consider the present value of each monthly payment separately and sum them up.
How Your ₹50,000 EMI Value Drops Over Time
Let’s look at the approximate present value of your monthly ₹50,000 EMI at different points in the loan tenure assuming 10% inflation:
| Year | Nominal EMI (₹) | Present Value of EMI (₹) |
|---|---|---|
| 1 | 50,000 | 45,400 |
| 5 | 50,000 | 31,000 |
| 10 | 50,000 | 19,200 |
| 15 | 50,000 | 11,900 |
| 20 | 50,000 | 7,400 |
| 25 | 50,000 | 4,600 |
| 30 | 50,000 | 2,800 |
Notice how by year 30, your ₹50,000 EMI feels like just ₹2,800 in today’s money. This dramatic drop is because inflation reduces the real value of money over time.
Visualizing the Decline: EMI Value vs. Time
Below is a simple graph showing the exponential decline in the real value of your ₹50,000 EMI over 30 years with 10% inflation.
Why Does This Matter? The Real Burden of Your Loan
When you take a loan, the EMI you pay every month is a fixed nominal amount. But due to inflation, the real value of this EMI keeps decreasing. This means the burden on your pocket, in terms of purchasing power, reduces every year.
For example, paying ₹50,000 in year 30 is equivalent to paying only ₹2,800 today. This is why inflation is often called a loan borrower’s best friend.
However, this does not mean you should be complacent. Your income should ideally rise with inflation or faster to maintain your lifestyle and comfortably pay EMIs.
Income Growth vs. EMI Burden
Typically, salaries and incomes tend to rise over time due to promotions, experience, and inflation adjustments. If your income grows at or above the inflation rate, the relative burden of your EMI decreases further.
For instance, if your income grows at 10% annually along with inflation, your ₹50,000 EMI becomes easier to manage as years pass.
But if your income stagnates while inflation remains high, the EMI burden can feel heavier despite the nominal amount being constant.
Real-World Example: Housing Loan Scenario
Consider a housing loan of ₹50 lakhs with an EMI of ₹50,000 at an interest rate of 8%. Over 30 years, you pay ₹1.8 crore in EMIs. But due to inflation at 10%, the present value of all these payments is just about ₹56.5 lakhs — close to the original loan amount.
This means in today’s money, you are effectively paying back the principal amount plus the real cost of interest, which is much less intimidating than the nominal ₹1.8 crore figure.
This is why long-term loans with fixed EMIs can be manageable and even beneficial when inflation is considered.
How Inflation Affects Your Financial Planning
Understanding the impact of inflation on your EMIs is crucial for realistic financial planning. It helps you:
- Assess the true cost of your loan over time.
- Plan your income growth targets to comfortably meet EMIs.
- Decide between breaking investments or taking loans.
- Evaluate the affordability of large purchases like homes and cars.
Breaking Fixed Deposits to Pay Loans: Is It Always Wise?
Many people break their fixed deposits (FDs) to pay off loans or avoid taking new loans. While this may seem like a safe option, it often leads to opportunity costs.
FDs earn compound interest, which can accumulate significantly over time. Breaking an FD early may lead to penalties and loss of future interest, whereas taking a loan and paying EMIs may be more beneficial if your investments earn more than the loan interest rate.
Inflation further tilts this balance by reducing the real cost of EMIs over time, making it less painful than it appears.
Scenario Comparison: Taking Loan vs. Breaking FD
| Scenario | Loan Interest Rate | FD Interest Rate | Inflation Rate | Outcome |
|---|---|---|---|---|
| Loan @ 10%, FD @ 7%, Inflation 10% | 10% | 7% | 10% | Taking the loan is often better because inflation reduces EMI burden faster than FD grows. Breaking FD loses compound interest. |
| Loan @ 8%, FD @ 8%, Inflation 6% | 8% | 8% | 6% | Both options are close; decision depends on liquidity needs and penalty on FD breakage. |
| Loan @ 12%, FD @ 6%, Inflation 7% | 12% | 6% | 7% | Breaking FD to avoid high-interest loan is advisable if you cannot afford EMIs. |
How to Use This Knowledge for Smarter Financial Decisions
1. Don’t panic about EMIs: Understand that inflation reduces your real EMI burden over time.
2. Plan your income growth: Aim for salary increments or alternate income sources that at least match inflation.
3. Evaluate investments carefully: Compare your loan interest rate with expected returns from investments before breaking them.
4. Use calculators and tools: Our LoanVsFD App helps you simulate scenarios with your own numbers to make informed choices.
Final Thoughts
Inflation is a powerful but often overlooked factor in personal finance. It quietly reduces the real cost of your loan EMIs, making long-term borrowing more manageable than it seems. While ₹50,000 per month sounds like a heavy burden, in today’s terms, the total payment over 30 years is closer to ₹56.5 lakh — a fraction of the nominal ₹1.8 crore.
Understanding this concept empowers you to make smarter choices — whether to take a loan, break fixed deposits, or invest elsewhere. Always remember, the numbers don’t lie, but they do need context.
Use our LoanVsFD App to plug in your own figures and discover the real value of your EMIs and investments. Financial wisdom comes from seeing beyond the surface.
Ready to see how inflation impacts your finances? Download the LoanVsFD App now and make smarter financial decisions today.