Personal loans are a form of unsecured loans, which means the applicant is not asked to keep any asset as a collateral against the loan amount. Besides this, personal loans also offer a flexible fund usage. As the usage of the funds is not monitored by the lender, it gets easy for the applicant to allocate the money according to his financial needs. This means you can use a personal loan to finance your vacation as well as buy a car.
When borrowing a personal loan, there are several practices you should keep in mind. The Online EMI calculator is one of them. Calculating your EMI before applying for a personal loan is utmost important. There are several factors that can help you to determine the interest amount that you pay on a monthly basis.
Following are the factors that affect your personal loan interest amount:
- Loan amount:
Depending upon the loan amount you borrow, the lender charges you an interest. If the loan amount is less, the interest that you have to pay will also be low and vice versa. The loan amount you borrow is sanctioned by the financial institution depending upon your repayment capacity. To get qualified for a higher loan amount, you need to have a high income.
- Loan tenor:
The interest that you pay to your lender is calculated depending upon the loan tenor that you choose. You can choose a repayment tenor ranging from 1 year to 5 years. Depending on the tenor your monthly EMI will be calculated.
- Interest rate:
One of the most important factor while calculating your personal loan EMI is the interest rate. The interest rate charged on a loan varies from each lender. Some financial institutions can offer you a high-interest rate, while some might charge you with a low rate of interest. Thus, it is significant to calculate the EMI on the lender’s website that you are opting for.
After knowing the factors that determine your personal loan EMI, there are two ways you can calculate your monthly instalments. You can either calculate your EMI manually or use an online EMI calculator.
Calculating EMI manually:
To calculate personal loan EMI manually, you can use the following formula.
EMI = [P x I x (1+I)^N]/[(1+I)^N-1]
Over here: P = Principal amount
I = Interest
N = No. of months
Calculating EMI manually is a time-consuming process as well as error prone. Though the method is traditional, doing an annual calculation is not a trustworthy process. As loans can be one of the most important financial decisions, estimating a correct EMI amount is very important.
Online EMI calculator:
Online EMI calculators have made things easy for the loan borrowers. Keeping the traditional method of calculating the EMIs aside, you can easily do the calculations online. The online calculator is easy to operate; you simply have to enter the loan amount, tenor period and the interest rate that your lender is charging and the calculator will calculate the EMI amount for you. By doing this, you can easily plan your monthly instalments as well as reduce your financial stress. The online personal loan EMI calculator will give you the right estimated amount.
You can also try entering different digits in the calculator, to find out your repayment capacity. While calculating the EMI, it is essential that you enter the exact amount as you don’t end up estimating a wrong EMI amount. In case if you fall in such a scenario, then your financial planning can go wrong.
An efficient planning for a personal loan can help you avoid defaulting on the monthly instalments. You can plan your personal loan with the help of an EMI calculator. In order to calculate your equated monthly instalments, it is essential to know the factors above that determine your interest amount.