What's the role of interest rates in Agri Loan EMI calculations?

The interest rate plays a key role in determining the equated monthly instalment (EMI) for agricultural loans in India. Usually, financial institutions provide these loans using a reducing balance method (however, this may not be the case all the time). This means the interest is calculated monthly on the outstanding loan amount. The prevailing interest rate is used to compute the EMI.

Overall, interest rates on agricultural loans in India tend to range from around 7% on the lower end and up to 12-16%. However, the rate offered would depend on the provider, loan amount, tenure, risk assessment and other factors.

Financial institutions may also offer a discount on interest rates if farmers repay the loans on time. This effectively reduces the interest cost in the EMI. Overall, the prevailing lending rate, loan amount and tenure primarily determine monthly instalments. Lower rates help reduce farmers' repayment burden and enhance credit affordability.