If you’re planning to take a personal loan, you may feel overwhelmed by all the fees and charges. It can also be confusing to know exactly how much you need to pay every month if you take out a particular amount.
There are a few key terms that you need to know, as follows. The main loan amount you are taking is also known as the principal, and the interest rate is the fee paid to the bank or lender for providing the loan. The loan tenure is the duration over which you are repaying the lender the loan amount.
Now that you know the basics, let’s get into the details of how to know your personal loan EMI.
How Personal Loan EMI is Calculated
An EMI stands for “equated monthly installment”, which is a fixed amount that borrowers must pay each month during their loan tenure. As mentioned above, the EMI is calculated on the basis of several factors including the principal amount, interest rate, and repayment tenure.
One can calculate their personal loan EMI in two ways. The first method is manually calculating it, and the second is using a personal loan calculator. To determine your loan EMI, you’ll need first need the following details.
- Personal loan amount
- Rate of interest
- Loan repayment tenure
When you use a personal loan calculator, you will need to enter these details and it will automatically display the entire monthly EMI you need to pay. While using the personal loan calculator, ensure that the loan tenure is converted into months so as to get the correct EMI amount. The formula is as follows:
Personal Loan EMI= [ P X R X (1+ R) ^N]/[(1+R)^N-1]
Here is what the letters stand for in the formula above:
P is the principal or loan amount that is borrowed
R is the rate of interest levied on the principal (monthly rate)
N is the tenure or the number of monthly installments that you have to pay every month
Let’s take an example to understand how personal loan EMI is calculated using the formula above. Suppose you want to avail a personal loan of Rs. 1 lakh for 1 year at a 20% interest rate. First, you need to convert the annual interest rate into a monthly rate. Also, the loan tenure needs to be converted into months.
In order to calculate the monthly interest rate, you will need to divide the annual interest rate by 12 months. Therefore, 20/12= 1.66%. The one-year loan tenure also needs to be converted into months before you can use it in the formula. In the example used above, the tenure is 12 months.
Using these three variables, we’ll add them in the formula as follows:
EMI= [P x R x (1+R)^N]/[(1+R)^N-1]
EMI= [1,00,000 x 1.66/100 x (1+ 1.66/100)^
12/ [(1+1.66/100)^ 12-1)
EMI= Rs. 5,089.5
It is important to note that the EMI is inversely proportional to the loan tenure. This means that while the interest amount to be paid will increase when availed over a longer repayment tenure, the EMI payment will actually lower if the loan is paid over a longer duration.
Benefits of using Personal Loan EMI Calculator
- Saves Time: Since the personal loan calculator saves is quick and simple, it is highly time-saving. You can do multiple calculations in just a few minutes, simply by entering the loan details and letting the personal loan calculator do all the work!
- Accuracy: Manually calculating your personal loan EMI has a higher likelihood of making a mistake in your calculation, which will give you completely wrong information. It can also create a negative impact on your personal loan; therefore, it’s highly recommended to use a personal loan calculator to avoid such errors. The formulas needed to calculate your EMI are all automatically used to determine the EMI with accuracy- in just a few seconds!
- Planning Your Budget: When you decide to avail your personal loan, you need to make sure that your monthly budget can easily accommodate your EMI without putting a strain on your finances. By using the personal loan EMI calculator, you can easily plan your monthly budget by making the necessary adjustments after you know the monthly EMI amount you can pay.
Conclusion
Although you can find out your monthly loan EMI by calculating it manually or using Excel, it can be a rather complicated calculation. Not only is it more time consuming, but it also has a higher chance of resulting in errors. Forgo all the time and hassle of using the manual calculation method by using a personal loan calculator.
The personal loan calculator is an easy-to-use and simple tool that will provide accurate results in just a few seconds. Additionally, you can use it as many times as you need and make multiple calculations. As soon as you get the calculation you need, you can begin on your loan application process.
