A personal loan isan effective option to meet your immediate and unplanned financial needs.Whether it’s something planned like a wedding or remodelinga kitchen, or a contingency like a medical emergency, a Personal Loan can help you raise funds quickly.
A Personal Loan is a multipurpose loan with the minimum number of documents required, such as proof of ownership, income, and address. Once the necessary documents are submitted, the loan is processed quickly and usually disbursed within hours. With no collateral requirement, the borrower can breathe easy and focus on an effective repayment system. Also, Personal Loans usually have some basic eligibility criteria such as a minimum monthly income and good credit history (indicated by credit score).
What Is EMI?
An Equated Monthly Installment (EMI) is a fixed monthly payment made by a borrower to a creditor on a specified day each month. EMI is applicable every month on both interest and principal, and the loan is paid off in full over a few years.
EMI is dependent on several factors, such as:
1) Principal
2) Interest rate
3) Term of the loan
For a fixed interest rate loan, the EMI remains fixed for the entire tenure of the loan, provided there is no default or partial payment in between. EMI comprises both the principal and interest components of the outstanding loan. The first EMI has the highest interest component and the lowest principal component. With each subsequent EMI, the interest component keeps on decreasing while the principal component keeps on increasing. Thus, the final EMI has the highest principal component and the lowest interest component.
If the borrower prepays during the tenure of the current loan, either the subsequent EMIs get reduced or the tenure of the loan gets reduced or a combination of both. The reverse occurs when the borrower waives EMI during the tenure of the loan (check dishonor/bounce or auto deduction of EMI or insufficient balance in case of default) In that case, either the subsequent EMI gets increased or the tenure of the loan gets extended or a combination of both, besides inviting financial penalties.
Similarly, if the interest rate decreases during the tenure of the loan (as in the case of floating rate loans) the subsequent EMIs are reduced, the tenure of the loan falls or a combination of both. The opposite happens when the interest rate rises.
How To Calculate The EMI On Personal Loans
The EMI on your Personal Loan or any other type of loan is calculated by this formula:
EMI =[P*(R/100) * {1+(R/100)}^N]/[{1+(R/100)}^(N-1)]
Where
EMI= equated monthly instalment
P= the principal amount borrowed
R= loan interest rate(monthly basis)= annual interest rate/12
N= loan tenure (in months)
Let us assume that a borrower borrows a sum of Rs. 8lakh at a rate of 12% for a tenure of 5 years, the interest for the 1st month will be as follows
(8,00,000*0.12/12)= 8000
And the EMI will be calculated as follows:
EMI = [8,00,000*(1/100) * {1+(1/100)}^60]/[{1+(1/100)}^(60-1)] = 17,796
The total EMI payable is the sum of the interest and the principal amount.
Personal Loan Emi Calculator
Personal loans are “all-purpose loans”, which means you can get personal loans for any purpose, such as financing your travel or medical expenses, etc. As these loans are unsecured, the interest rate is relatively higher than a home loan. The Personal Loan EMI Calculator is a great tool that helps you calculate the EMI and check if it matches your repayment capability. It works with the same parameters as other EMI calculators, such as loan amount, duration, and interest rate. You can edit the fields in the calculator to find the right combination of Principal, interest rate, and tenure that results in the EMI that suits you.
What Are the Benefits of Using the Personal Loan EMI Calculator?
Here are some of the benefits of using an EMI calculator for personal loans.