Smart Things To Know About Personal Loan EMI Calculator

As per the data published by CRIF, as of March 2021, the delinquency rate in small-ticket personal loans had increased to 12.7% (1). Borrowing in an unplanned way is one of the basic reasons for which the volume of these bad loans has increased. Individuals can significantly reduce their chances of repayment failure if they opt for a tenor that gives them a monthly payable within their financial capacity. With a personal loan calculator, they can easily determine a suitable repayment period and clear their debts conveniently.

What is a Personal Loan Calculator?

A personal loan calculator is a virtual tool that major financial institutions extend on their official websites. Their main purpose is to help customers determine a befitting tenor. The web-based tool uses the following mathematical formula for EMI calculation:

EMI amount = P x R x (1+R) ^N / [(1+R) ^ (N-1)]

In this formula, P = total borrowed amount, R = rate of interest, and N = repayment period.

Individuals can also measure their instalment amount manually using this mathematical formula. However, there is a chance of human error in this pen-paper calculation process. In fact, it can be hectic and time-consuming. The online personal loan EMI calculator can effectively reduce all these inconveniences.

How to use the personal loan calculator

Here is a stepwise guide for using this calculator:

Step 1: Open the calculator from any financial institution’s website

Step 2: Provide the necessary inputs, such as the interest rate, desired tenor, and the loan amount

Upon completing these two simple steps, individuals can see their EMI amount and total interest liabilities reflected on the calculator’s interface.

Apart from this, there are several other calculators that can help individuals get the most out of their personal loans. They need to know about all these calculators as well.

Benefits of using a personal loan calculator

Individuals can leverage the following advantages by utilising this virtual calculator:

Knowing the instalment amount

By knowing the EMI amount, individuals can make necessary plans to repay their debts timely. In fact, if the instalment amount is higher or lower, they can leverage the tool to know which tenor would bring them an appropriate and manageable monthly obligation.

Comparing lending institutions

They can compare different loan offers according to their interest outgo. This helps individuals choose a loan offer that can substantially reduce their borrowing costs.

Nevertheless, besides interest outgo, they also need to keep in mind 7 essential personal loan charges. All these charges also significantly contribute to the overall borrowing cost of a personal loan.

Getting the amortisation table

Individuals can also generate the amortisation table using this EMI calculator. This table gives the breakdown of EMIs into interest and principal components. They can even know how much interest they still need to repay to close their loan balance. Knowing the pending interest outgo, they can decide whether they should opt for a balance transfer facility to enjoy the lowest personal loan interest rate offered by a different lender.

How can one understand the suitable tenor using the personal loan calculator?

First, individuals need to determine the monthly instalment amount they can easily pay. After comprehending it, they need to open the calculator and provide all the necessary inputs, including the interest rate, borrowed amount, and the preferred tenor of the personal loan.

After entering those values, they may find that the instalment amount is very low/high at that tenor, considering their repayment potential. In this scenario, they need to change the value of the tenor using the permutation combination method. This way, they can get a suitable tenor within their financial capacity.

Let’s assume that an individual can manage an instalment amount up to Rs.15,000, and he/she takes a personal loan of Rs.5 lakh at a 13% interest. If the individual enters a tenor of 3 years along with the interest rate and loan amount on the input boxes of the calculator, he/she can find that the EMI amount would become Rs.16,847. So, he/she needs to increase the tenor until the EMI becomes lower than Rs.15,000. Here, the repayment period of 3.5 years or 42 months would be a suitable tenor for the person as the EMI amount becomes Rs.14,881.

Besides, individuals also need to know simple ways to manage their debt effectively. It will help them pay all their instalments on time without fail.

Apart from this, individuals also need to know that several Indian lending institutions facilitate pre-approved offers to their existing customers. These special and tailored loan offers are available on their financial products like business loan, personal loan and credit card. They can significantly expedite their loan application process by accepting these special credit facilities. They just need to mention their names and contact details to check their pre-approved offers.

In conclusion, individuals need to use a personal loan calculator while they apply for a credit facility. It will help them understand which tenor will suit their repayment potential. By obtaining a pre-estimated tenor, they can easily avoid financial difficulties during their loan repayment.