A Detailed Insight to Personal Loan Interest Calculator
Calculating interest rates is a challenge that people generally face while looking for personal loans. Personal Loan Interest Calculators are online tools used to easily figure out the EMI per month to be paid on these loans. Often these calculators are not exclusive to the banks and can be used to determine the monthly installment payments of loans from all banks.
Details like loan amount, tenure, as well as interest rates need to be input into the calculator, and the calculator can give accurate monthly EMIs amount as well as their breakdowns.
How Does the Calculator determine the monthly EMIs?
All Personal Loan Interest Calculator tools use the same formula to determine the monthly installments on loans.
The formula:
EMI = P x R x (1+R)^N / [(1+R)^N-1]
P = Principal Amount (Amount of the loan)
R = Interest Rate
N = Monthly Installment numbers.
So, for instance,
If the borrowed amount is Rs. 1,70,000/- at 12.5% Interest Rate (PA) with 1 year (12 months) tenure, then the EMI will be -
1,70,000 X 12.5 X (1+12.5)^12/ [(1+12.5)^12-1] = Rs. 15,144 per month.
The total amount that needs to be paid in this scenario will be:
Rs. 1,81,729 ( Principal - Rs. 1,70,000 + Interest - Rs. 11,729)
Important Points to Remember:
● To reduce the EMI:
- Negotiate a better interest rate.
- Borrow for a longer period. This will however increase the interest but reduce the monthly payable amount.
- A decent CIBIL credit score will help to reduce the interest rate and thereby the EMI as well.
● Inability to pay a monthly EMI may reduce the CIBIL score. This will affect the chances of getting a future loan.
● Under NACH (National Automated Clearing House) mandate, the EMIs get automatically debited from the bank account directly.
● The loan plans of most banks set the date for EMI payment at the end of the month.
Some loan plans may require the borrower to have a certain amount of balance in the account at the end of each month.
● The amount of money consolidated in the account can also sometimes affect the loan interest.
What does the monthly EMI depend on?
● The amount of money borrowed from the bank. The higher the loan amount, the higher is the monthly installment.
● The repayment history and CIBIL score of the borrower. This will directly affect the interest amount which will affect the EMI.
● The tenure of the loan. Longer tenures will have higher interests.
Advantages of using a Personal Loan Interest Calculator:
● Rapid EMI calculation to determine whether there are any hidden charges from the bank.
● Having a quick option to change the number of monthly EMIs to figure out the perfect EMI Plan based on what the borrower can afford.
● This will further help in making a repayment plan for the EMIs.
● The borrower can use these tools to compare the interest of multiple banks.
● Having an upfront calculation before taking the loan will help in avoiding errors that may impact the borrower’s credit score negatively if unable to repay.