Personal loans are a great solution to get you out of a financial emergency. They can be availed quicker than other loans, don’t generally require collateral, and are even disbursed faster. All these processes become even faster if you’re availing of a pre-approved personal loan.
Personal loans can be used for any purpose, like education, vacation, or even for certain business expenses. However, every lender has its terms and loan schemes for personal loans and comparing them will help you choose the best loan for your needs.
A personal loan EMI calculator helps you estimate monthly instalments based on the loan amount, interest rate, and tenure.
How to Use Personal Loan EMI Calculator?
An EMI calculator can compute your instalments within minutes, making it easy to compare different loan schemes. The following three factors influence your EMI amount:
- Principal: This is the actual loan amount that you avail. The EMI will include a percentage of the loan principal. The initial EMIs have a higher rate of interest and lower principal, but as the loan gets closer to maturity, the portion of principal increases.
- Interest: This is the rate of interest on your loan that is a part of your EMI.
- Loan tenure: This is the duration for which you get the personal loan.
- Total payment: The total payment or EMI is the amount obtained using the principal and interest against the loan tenure.
The calculator uses a simple formula to get you the required calculations, as below.
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
- P is the principal loan amount,
- R is the rate of interest, and
- N is the loan tenure
These three elements are variable, meaning you can change any of these values to determine how much EMI will fit your budget.
So, if you take a loan of Rs 2,00,000 at an interest rate of 11% for 2 years, the EMI will be:
P = Rs 2 lakh, R = 11%, N = 24 months.
EMI = [2,00,000 x 11/100/12 x (1+11/100/12)^24] / [(1+11/100/12)^24-1]
So, the monthly instalment comes to 17, 800.
Benefits of Personal Loan EMI Calculator
The calculator automatically calculates your EMI towards a particular loan and gives you each instalment’s principal and interest components. Here are some other benefits of using a personal loan EMI calculator:
All calculations on the EMI calculator are performed within seconds, so you can quickly enter as many permutations as possible and combinations of the principal, rate of interest, and tenure to compute your EMI for various personal loan schemes. If you try to perform similar calculations manually, it leaves room for errors.
Not to mention that it would take hours to get your EMI for different scenarios if calculations are done manually. A computerised loan calculator is available on every renowned lender’s website and is free to use. So, you can get an accurate estimated amount for your EMI payments.
Easy to Use
All personal loan schemes are different. For example, one scheme may have an interest rate of just 8%, but the tenure would be just one year, whereas another may have a longer tenure of 3 to 4 years but with an interest of 10-11%.
It’s essential to compare all loan schemes from reputed lenders to understand which loan offer is best for your needs and fits your budget.
Using the EMI calculator, you can compute your monthly instalment and how much interest you will be paying overall. All you need to do is enter the loan amount, the interest, and tenure, and the calculator will do the rest to give you the EMI amount. It’s as easy as that.
Helps Choose the Right Tenure
You might need a personal loan for a financial crisis but might not want to be stuck paying off the loan for several years.
If a specific loan offers a higher amount for less tenure, you will have to pay more for your EMI every time. However, this will reduce your interest burden on the loan.
The EMI calculator can help determine precisely how much EMI you need to pay, which you can compare against your income and the principal plus interest on your personal loan.
Helps Plan Prepayment
A personal loan can help achieve any short-term needs you may have, like going on a vacation or for a marriage.
Once the financial situation is dealt with, you might have extra cash to pay off your loan early. To close your loan out as soon as possible, you can opt for prepayments, which can be made in small lump-sum instalments between regular EMIs, or you can pay off the entire pending amount in one go.
If you plan to make prepayments on a loan, consider the following two factors.
Most lenders will levy a prepayment charge if you clear off the loan early. This fee may be a flat rate or a percentage of the pending amount. It’s good to check for prepayment charges from the lender before applying for the loan.
Savings on the loan
Prepaying can save a lot on your interest since most of your EMIs are towards interest payment, and once that’s cleared, you start paying off the loan. However, some loan schemes have interest on a reducing balance basis, so the interest paid on the loan remains the same.
In such cases, look at the interest rate charged instead of making a decision based solely on the loan tenure.
Ensure a Healthy Credit Rating
If you avoid calculating EMI before applying for a personal loan, you might be surprised after it gets sanctioned and you start paying. The loan calculations are tricky since they consider interest based on tenure and principal.
So, if the EMI falls outside your budget, it could lead to defaults in repayment, thus affecting your credit rating.
Whether you’re planning to apply for a pre-approved personal loan or avail of a loan from scratch, an EMI calculator is always helpful in understanding your overall loan burden over the loan tenure.
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