In the Indian debt market, a personal loan is among the most widely used loan products today. This category comprises 75%+ of all credits in India. These loans are a popular option for prospective borrowers due to their unsecured nature.
Before deciding whether to apply for such loans, it is important for individuals to familiarise with the details.
The EMI amount that a potential borrower would pay towards the loan repayment is one of the most important features of a loan. Using a personal loan EMI calculator to calculate EMIs is the best method to be certain of upcoming payments.
How Can a Loan EMI Calculator Benefit You?
The process of calculating the EMI amount for a personal loan is complex and involves multiple variables. Therefore, for those not familiar with the details of EMI calculation, it can be a herculean task. In such a case, personal loan EMI calculator can come in quite handy.
- EMI calculators allow you to do complex calculations in seconds and save time that could be spent more productively.
- Such calculators eliminate any chance of inaccuracies in the calculations.
- These calculators allow you to plan for your repayment strategy by providing you with precise information.
How is Personal Loan EMI Amount Decided?
All online calculators use the same formula to calculate the personal loan EMIs.
- The lending institutions’ personal loan calculators use the same standardised method.
- They use this method to accurately calculate the amount you would need to pay in EMI against your loan
Formula for Calculation of EMI
EMI = [P * R * (1+R)n]/ [(1+R)(n-1)]
Where, P= Principal amount
R= Rate of interest
And n= Time or Tenure
Here, we can see that calculating EMIs is quite a strenuous process and can consume a lot of time if done manually. Therefore, to save your precious time, lenders provide a free online tool to calculate EMIs in seconds.
Meaning of Reducing Interest Rates on Personal Loans and EMI Determination
The interest charged on a personal loan at a flat rate is calculated on the loan amount during the loan repayment period. If you take out a loan at either a reducing interest rate or a lower balance rate structure, interest is only calculated on the remaining loan amount.
If you make monthly payments, the interest rate for the remainder will be calculated on your outstanding loan balance, which can bring significant difference to the EMIs payable due to a varying interest computation.
Which One to opt Between Fixed Interest Rates and Floating Rates?
The Marginal Cost of Lending Rate or the MCLR is what links the floating or variable interest rate. The MCLR can change when the interest rate moves. So, the interest rate may fluctuate depending on the MCLR regulations and base rate changes.
You will, alternatively, pay the same interest rate throughout your loan repayment period, only if you take out a personal loan at a fixed rate.
A fixed interest rate gives you the benefit of knowing exactly what you will be paying over the loan term. A fixed interest rate is a good option for people who plan the entire repayment ahead.
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However, if you are not averse to fluctuating interest rates and want to reap their benefits, you can opt for a floating interest rate. A variable interest rate benefits you by decreasing the repayment amount when the interest is low.
Important Factors to Consider:
- Processing Charge: Loan providers also charge a processing fee, a one-time cost which can make the loan more expensive. So, make sure to consider its rate. It doesn’t matter if you get a low-interest rate, it is worth comparing the processing fees charged by different lenders.
- Pre-Closure Fees: Some banks may charge a pre-closure fee if you repay your outstanding loan balance prior to the end of the loan repayment term. Check to see if the bank/financial institutions you are applying to, impose a pre-closure fee.
- Customer Service: A lender with good customer service support is essential for a satisfactory borrowing experience.
- Duration of Loan Disbursal: If you’re looking for a personal loan to cover an immediate funding need, you should consider the loan disbursal timing. Reputed financial institutions will disburse the loan amount in a matter of minutes to eligible individuals.
- Additional Charges: If the interest rate is higher, the lender may not charge you any additional fees. However, you might be able to lower the total cost of the loan by lowering the cheque/EMI bounce, instrument return charges, and stamp duty charges. Before you apply for a personal loan, compare all charges.
Prior to applying for a personal loan, it is ideal to calculate your EMIs. You can calculate your EMI manually. But a personal loan EMI calculator will give you a better estimate. An interactive chart allows you to select the loan amount, tenure, and interest rate to calculate the exact payable EMIs.