as of march 2020, personal loans in total bank credit stood at 24%, recording a 7.4% jump since march 2015. this statistic corroborates market sentiments of personal loan gaining nationwide prominence.
personal loans are unsecured loans granted to satisfy personal needs such as fulfilling children's higher education costs, buying a home, or something else.
these loans are sanctioned after a careful analysis of the borrower's income level, payment histories, and repayment capacity. these loans allow the borrower to make emi, i.e. equated monthly installments payments.
as the term suggests, they are fixed amounts calculated on the principal and interest that are payable by the borrower on a fixed calendar date every month.
while a personal loan can help you survive a monetary emergency in a pinch, it is not worth drowning in debt over this type of credit.
hence, it's important to familiarise yourself with the nitty-gritty of the loan and the repayment procedure. this is where the role of an emi calculator comes into play.
an emi calculator is an online calculator used in the calculation of loan emi for the loan repayment. it allows you to calculate the emi rate for any loan, be it a car, home, or personal loan. the calculated emi has two components –
the formula to calculate emi is -
p - principal amount,
r - interest rate,
n - loan tenure.
one can access this calculator on the internet by visiting the website portals of different lending players. the calculator requires the user to punch in different values, like:
bear in mind that most banks offer personal loans for a maximum period of 5 years. the calculators are designed in this fashion, such that entering a value above 5 prompts the user to change their input.
once you enter your values, the calculator displays three crucial figures:
this way, you can figure out the accurate values of your emi payments, that too in a fraction of the time it normally takes to calculate these numbers manually.
it's pretty simple to access and understand this calculator's workings. the tool works in the same way as a regular calculator. all you're required to do is:
the calculator will immediately display the emi against your loan amount in the form of a table and a colourful pie chart or a bar chart.
a personal loan can get messy. since the loan gets customised to suit your needs and capability and involves no collateral, it's crucial to stay updated at each stage of this process.
this emi calculator helps you achieve better financial planning. by plugging in your desired values, you get a good idea of what's in store for you after the loan is approved.
moreover, loan calculations may get messy and complex. with one simple click, you have early access to information that otherwise channelises your energy into unproductive tasks.
the calculator uses the following formula to generate results:
emi = [p x r x (1+r) ^ n] / [(1 + r) ^ (n - 1)]
emi = equated monthly payments
p = principal amount
r = interest rate
n = tenure
let's assume person x is seeking a personal loan worth ₹ 18,00,000. he intends to repay this back in 5 years (60 months) at an interest rate of 12% per annum.
punching these numbers into the formula gives:
emi = [1800000 x 0.12 x (1+0.12)^5] / [(1 + 0.12)^4]
thus, the emi value equals to ₹ 41,883.
by now, we hope your intuition points to the numerous advantages presented by an emi calculator. let's decode them here:
1. good financial health
repaying loans can get challenging. inadequate information, on top of this, just worsens the situation.
however, to strike balanced financial health, you need to stay updated about the loan market - while at the same time, honestly assess your capabilities to fulfil them.
this calculator helps you with information at your disposal. the emi calculator presents the entire breakup of the instalments expected from your end.
this way, you can gauge your capability and make an informed decision.
2. no room for ambiguity
most calculators present answers to the nearest degree. the emi calculator is an exception, though.
the calculator presents a precise answer to the last digit. therefore, the stress of experiencing increased repayment values or anything along such lines is out of scope in the future.
3. free access
this online tool is available for free on the website portals of the lending banks. there is no limit to the number of free calculations. one can get going until they find the emi number that suits their financial health.
4. keeps you safe
often, people end up becoming victims to the nastiness of market movements. however, this nastiness does not exist when you stay updated with the aid of emi calculators.
as warren buffet rightly pointed out, "risk comes from not knowing what you're doing." while this has been quoted in a stock market context, it applies equally well to the personal loan subject.
prepayment is a choice provided by the banks, which allows you to pay your loan before the loan tenure. with prepayment, you do have considerable savings.
if you are seeking a personal loan for ₹ 2,00,000 at 14% for 5 years, provided, the prepayment penalty is 5%, and 1 year is the lock-in period. so the calculation will be -
prepayment after 1 year (in ₹)
prepayment after 3 years (in ₹)
the table clearly shows how prepayment can help you save a huge amount.
emi (equated monthly installment) is the amount that a borrower pays every month to the lender against his/her loan. there are 3 key factors that affect the emi rate of your loan, which are -
the table below shows the emi calculation of a loan of 10 lakh in different cases -
1. when interest rates are different
2. when loan tenure is different
a personal loan and an emi work wonders if you are hesitant to pledge in your assets. that said, it is equally important to be vigilant and an honest borrower, who pays back every rupee on time.
in the midst of acquiring a personal loan, emi calculators are the way-to-go for maintaining a healthy financial lifestyle. make them your best friend to avoid unexpected troubles.
equated monthly installment or emi is the amount that a borrower pays every month to the lender against his/her loan.
you can use the emi calculator formula to calculate your emi.
emi = pr(1+r)n(1+r)n-1
p = principle amount
r = interest rate
n = loan tenure
yes. the emi rate changes if it is a floating loan. however, in the fixed-rate loan, emi remains constant.
it is the monthly payment of interest component only. it excludes the principal amount.
the longer the tenure, the smaller is the cost of emi.