There may be times when you may need urgent cash, but you may not have enough stashed away in an emergency fund. In such times, a personal loan is a great option that helps you get through.
Since personal loan funding does not come with an end-use restriction, it can help you tide over emergencies or large expenses, be it to:
- Meet medical expenses
- Repair or renovate your house
- Pay tuition fees
- Weddings
However, to make the most out of your loan, you must assess your monthly repayment instalment. You can do this by using a personal loan EMI calculator. Understanding the monthly instalment amount beforehand enables you to make an informed decision prioritising your financial wellness.
Read on to have a better understanding of why using a personal loan EMI calculator and how to use it.
Personal Loan EMI Calculator: The What and How of it
A personal loan EMI calculator is an online calculator that allows you to calculate the monthly repayment instalments for the loan you plan to avail. Available for free on most platforms, you can use this tool as often as you want.
This enables you to adjust the loan terms as often as you want until you find one that best suits your finances before you apply for a personal loan. In addition, estimating your monthly repayment before borrowing lets you know whether your budget can accommodate it.
In simpler terms, it shows you the principal amount and interest payable during the entire tenure. Here is how a personal loan EMI calculator works:
- First, you need to input the amount and the tenure you want to borrow for
- If the tool permits it, enter the interest rate (some lenders offer the tool with a fixed rate as per their policy)
Once you enter these values, the estimate of your EMIs, total interest paid, and principal repayment will get displayed. You can check the EMI amount and the total interest amount to gauge the feasibility of your terms.
You can even access the repayment schedule that displays how your repayment will take place. Based on this, you can assess when it would be best to prepay the loan and plan accordingly.
The Formula to Calculate Personal Loan EMI
If you want to calculate the monthly instalment manually, use this formula:
EMI = [P x R x (1+R) ^N]/ [(1+R) ^ (N-1)]
Here,
- P refers to the amount you borrow
- R refers to the interest rate levied by the lender
- N refers to the tenure you borrow for
Finding out the monthly repayment amount using this formula can be complex and time-consuming. Moreover, manual calculations also increase the risk of incorrect results, which affect your borrowing plans. On the other hand, using the personal loan EMI calculator is easy and gives accurate, instantaneous results.
4 Benefits of Using a Personal Loan EMI Calculator
A personal loan EMI calculator is a user-friendly tool that comes with several benefits, which includes the following:
Aids in Optimising the Loan
The personal loan EMI calculator allows you to adjust the terms as often as you want. With these features, you can try different combinations of loan terms and choose the most feasible option. In addition, the tool lets you find the loan terms that give you the funding you need without compromising your future financial wellness.
Helps in Financial Planning
The personal loan EMI calculator gives you an estimate of what your repayment will look like. It gives you an idea of your EMI amount and an amortisation schedule. While the former allows you to gauge whether you can make the monthly payments on time without overburdening your finances.
The schedule, on the other hand, assists you in planning your finances for the future and allows you to prepare for prepayment and save more. Doing this is crucial because both approaches work to ensure that you do not default and repay your loan efficiently.
Provides Easy Comparison
Since many lenders are available offline and online, offering personal loans at different terms, it becomes difficult to compare them. However, you can use the personal loan EMI calculator to choose the best among them.
One of the best things about using this online tool is that there are no restrictions on how often you can use it, and it is free of cost. This way, you can check EMIs and total interest payable for various offers without hassles.
Factors that Affect Personal Loan EMI
The affordability of a loan generally depends on the amount you have to pay as monthly instalments and the total amount payable. So, it is essential to know the factors that influence your EMI. Here is a breakdown.
Loan Amount:
The sanction is a critical component of your EMI. This is because every instalment that you pay comprises the principal amount. As such, a high amount can lead to higher EMIs and vice-versa.
Rate of Interest
Interest rates influence the interest amount you pay. Since you pay the interest at the rate levied by the lender in every instalment, it is a key factor that affects the cost. Generally, a higher interest rate will result in a higher monthly repayment amount and vice-versa.
Do keep in mind that multiple factors affect the interest rate levied by the lender, including your credit score. A good score implies good creditworthiness, making you eligible for attractive interest rates.
Repayment Tenure
Your loan tenure determines how long you will repay the loan, i.e., the number of instalments you will pay. Since the EMI amount is divided equally, a lengthy tenure may result in a lower amount, and a shorter one may result in a higher monthly amount.
However, you need to remember that with a lengthy tenure, you pay interest for a longer period, which would drive up your cost of borrowing. So, make sure that you choose accordingly.
It is also essential to remember that the above factors impact each other. For example, your loan amount and tenure will affect the interest rates. You can even use a personal loan EMI calculator to see how these factors impact the other and the EMI amount.
In conclusion, the personal loan EMI calculator is an easy-to-use online tool that helps you determine monthly payments against your loan. In addition, it also helps you learn the total interest payable during the entire duration of the loan.
As for the benefits, the foremost is that it helps you plan better for your finances. With estimates from the tool, you can budget better and save yourself from any defaults. This subsequently improves your repayment history and credit score.
In addition to all this, this tool assists you in choosing the suitable loan offer by allowing you to compare loan offers. Having reliable information is key to borrowing smartly.
