Thursday, December 7, 2017

Why is Using a Personal Loan Calculator to Get Your EMI important

Before taking a personal loan, it is important to carry out a detailed calculation of exactly how much it will cost you. You can do this by figuring out the amount of monthly payments you will have to make and how many EMI (Equated Monthly Instalments) will be required to repay the loan.

To arrive at this figure, you need to calculate the amount you plan to borrow and the interest it will attract. After you have this information, you can compute the exact monthly payment. If this amount is too high to suit your budget or income, you can reduce it. Simply increase the loan tenor or reduce the borrowed amount to decrease your EMI. Your calculations will show a marked difference after implementing either of these changes.

Even after you find the right EMI based on your needs, you will have to repeat the same process according to the rates offered by different financial institutions. Since this practice is time-consuming, some lenders have now introduced a much easier way to calculate your EMI—through a personal loan EMI calculator.

What you should know about Personal Loan EMI calculators
An EMI is an amount a borrower has to pay throughout the loan tenor to repay the loan, each individual instalment consists of a part of the principal and interest due on the loan.

EMI calculators determine the value of this installment with the help of a formula and three primary factors, which are:

● The interest rate
This is the rate of interest charged on your loan amount. It can be fixed or floating, depending on you and your lender’s preferences. Fixed interest rates mean your EMI will be the same throughout the repayment tenor. On the other hand, a floating interest rate means your EMI will vary according to the base rate.

● The loan amount
This is the total amount you borrow. Your EMI are based on this value, which sometimes do not include the other fees and charges associated with the loan, such as processing fees or secure fees. It is best to get an idea of these charges before signing on for the loan.

● The loan tenor
This is the time frame over which you choose to repay your loan. Some financial institutions offer a flexible duration between 12 months to 60 months for personal loans. This allows you to choose whether you wish to repay the loan quicker or slower, based on your financial situation.

A personal loan EMI calculator takes these three factors mentioned above and arrives at your EMI amount using the following formula:

E = P x r x (1+r)^n/((1+r)^n – 1)

where

E is the EMI you are required to pay every month
P is the principal amount you will borrow
r is the interest rate applicable, calculated on a monthly basis
n is the total loan duration in months

For example, if you take a personal loan amounting to Rs. 8 lakh, for a tenor of 3 years, an interest rate of 10.25%, and a processing fee of 2%, you can use the formula provided above to calculate your personal loan EMI, which will come to Rs. 25,908. This includes the total principal amount of Rs.8 lakh in addition to a total interest of Rs. 1,32,679 and a processing fee of Rs. 16,000.

Therefore, based on the loan parameters and the formula, you can easily use a personal loan calculator to find the EMI for any loan amount you choose. This makes of computing EMI for different principal amounts easier and error-free. It also enables comparing different products in the market easy, so you can opt for the best offer available.

Today, a number of financial institutions offer EMI calculators to ease the process of selecting a personal loan for consumers. Most calculators have a user-friendly interface with features allows its users select the tenor, principal, and the interest rate easily.

If you’re looking for a Personal Loan that offers competitive interest rates, a flexible tenor, easy documentation, and a helpful EMI calculator, try NBFCs like Bajaj Finserv. It also offers instant approval and disbursal within 24 hours, which is the best turnaround time for any financing company in India.


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