A personal loan is important to finance your emergencies and get immediate funds for your wedding, medical purpose, vacation, or any other necessary expenses. The market for a personal loan has seen tremendous growth in the past years, mainly because it easy to get, is hassle-free, minimum documentation is required, and comes with fast loan disbursal.
Before you decide on a personal loan, it is important to know all the details, and then take the right decision. This decision will be easy if you use the personal loan EMI calculator. If you are not sure what it is, then this article will help you.
What is an EMI calculator?
EMI stands for Equated Monthly Instalment, through which one repays their loan amount and the interest on the outstanding amount of your personal loan. A longer loan tenure helps in reducing the EMI.
How to calculate personal loan EMI?
The EMI is calculated using the formula: P x R x (1+R)^N] / [(1+R)^N-1]
Where, P= Principal or your loan amount
R= Rate of interest
N= Tenure (loan term in several years)
The EMI includes two main components – principal and interest. In the initial part of your tenure, the interest amount is higher, which slowly with time becomes progressively lower. Towards the end of the tenure, the principal amount forms a large proportion of the EMI.
Why calculates EMI?
EMI is an important aspect of your personal loan decision. There are various reasons why one should calculate EMI, some of which are mentioned below:
- Get The real cost of the loan: The actual cost of the loan is not just the principal amount, but also includes the interest rate that one is expected to pay. The EMI calculator helps you understand that real cost. Once you know the interest rate and the loan tenure the lender is providing you, calculating the EMI is a piece of cake.
- Understand your repayment schedule: The EMI calculator helps you understand the breakup for your principal amount and interest and how much you will owe the lender on monthly basis. This will help in managing the loan repayment over the coming months and help you in managing your finances.
- Pick a suitable loan amount and tenure: Once you have calculated your expenses, and you know the monthly payment that you can make as EMI, the EMI calculator will help you figure out the loan amount, interest rate, and the time period that works for you. Larger loan amounts mean higher EMIs and interest payments and vice versa. Smaller tenure means higher EMI and lowers interest rates.
With the above benefits now, you know that when you are planning to borrow a personal loan, it is important that you use a personal loan EMI calculator before you apply. You can plan your repayment and also compare the various loan terms with the lenders to arrive at a suitable financial scenario.
What are the factors influencing EMI?
With the EMI formula, you might have figured out the various factors that influence EMI:
- Loan Amount: The amount that the borrower decides to lend from the lender is known as the loan amount. The larger the loan amount, the higher is the EMI.
- Rate of Interest: The interest charged by the borrower on the loan amount is the rate of interest. The more the interest rate, the more is the EMI.
- Loan Tenure: The time period under which you are required to repay the loan, is the loan tenure. The higher the tenure, the lower is the EMI.
No matter how urgently you need a loan, always planning for the future is important. The only way of doing this is through the personal loan EMI calculator. So make sure you choose your lender wisely and know your monthly debt before applying.