A personal loan is a great way to protect your savings and conveniently handle large-ticket expenses. It is useful for a variety of purposes, like paying for an unexpected home repair, or a lavish international vacation.
However, the interest rate is mostly higher because it is an unsecured loan. Wondering whether you can afford to pay back the loan? A personal loan EMI calculator is a quick and easy solution to calculate it beforehand.
Why use a personal loan calculator for EMI?
A loan EMI calculator is an important step to take in order to make an informed choice if you intend to apply for a personal loan. Here are the reasons why:
Effectively plan your monthly budget
A personal loan, although it provides an easier method for large purchases, may infringe on your monthly budget if you do not manage it well. You can schedule and put your finances in the right way by using it to calculate the amount of money to be put aside each month to pay back the loan. Furthermore, it only permits you to borrow an amount that is easy to repay.
Reduce time and produce exact results
Although it takes longer and is more complex, the manual method of EMI calculation is also more error-prone. Additionally, it will take you hours to experiment and adjust various values. However, you can quickly get precise results with an online personal loan calculator. You don’t have to spend the entire day writing on a notepad; you can continue to try as many combinations as you like.
Decide the repayment tenure
A personal loan calculator can easily help you calculate the repayment period and make informed decisions. Lowering the EMI amount can be achieved by increasing the tenure. Conversely, a longer term can decrease the EMI amounts while the shorter ones look like higher EMI amounts to be paid, lower interest payments, and fewer payments per month. You can plan your EMI payment based on your repayment capacity by experimenting with the different tenure options on the personal loan calculator.
How can you calculate EMI for your personal loan
You can use the following mathematical formula to determine your EMI amount:
EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]
“P” represents the “Principal Amount.” The initial loan amount that the bank gave you, on which interest is computed, is known as the principal amount. The letter “R” represents the bank’s interest rate. “N” is the number of years allotted for loan repayment.
Factors influencing the amount of EMIs on a personal loan
Here are the factors that affect EMIs on personal loans:
Loan amount and tenure
If your loan amount is high, and your tenure is short, then the EMI amount will be high. Similarly, for the same loan amount, if the tenure is increased, the monthly EMI goes down. However, longer tenure also means higher overall interest rate.
Credit score
If your credit score is above 750, you will get a personal loan with a lower interest rate. Also, if the interest rate is low, the EMI will be low.
Debt-to-Income ratio
Your EMI should not exceed more than 40-50% of your take-home salary. The bank increases the interest rate in these cases. But a healthy debt-to-income ratio will give you a competitive interest rate.
How to use the EMI calculator for personal loans
It’s quite easy to use a personal loan EMI calculator. To use it effectively, follow these steps:
- First, enter the amount.
- Next, enter the interest rate that your bank is offering.
- Depending on the calculator, you can select a loan tenure in months or years.
- Click ‘Calculate’ after you have entered all the information. Your EMI will be calculated and shown automatically.
Personal Loan Calculator is a Vital Planning Tool
The way you obtain financial services is also evolving as a result of the rapid advancement of technology. Indeed, you can now get loans and other financial services from the comfort of your own home. This includes practical online tools like the EMI calculator.
This calculator not only makes your life easier, but it also gives you confidence with your personal loan application as you have a clear picture of what to expect. Thus, the next time you think about taking a personal loan, use the EMI calculator and find out how much it costs.
FAQs on Personal Loan Calculator
-
Can I use a personal loan EMI calculator for other types of loans?
Yes, you can use a personal loan EMI calculator for other types of loans, such as home loans, car loans, or education loans.
-
Is the EMI amount constant for the loan?
Yes, if you took out a personal loan with fixed interest, the EMI amount stays the same for the duration of the loan.
-
What is the amortisation schedule for a personal loan?
In the first few months of repaying a personal loan, the interest will be higher than the principal, which gradually decreases. An amortisation schedule provides you with a monthly breakdown of your EMI’s principal repayment and interest component.
-
Will I be able to finish the payment of my personal loan on time?
Your loan term may last from a year to five years. However, the EMI will change as the tenure it is repaid gets longer or shorter.
-
Is EMI a good or bad option?
Your ability to pay will determine how you feel about EMI. If you lack the money to repay the loan in a single payment without putting a strain on your finances, EMI may be a good choice.