A Personal Loan is a type of unsecured loan extended to an individual for various purposes such as home improvement, debt consolidation, a significant purchase, or a financial emergency. The loan amount is generally smaller than a secured loan and has higher interest rates.
An EMI, or Equated Monthly Installment, is a fixed amount of money that a borrower pays to the lender each month until the entire loan is paid off. The EMI for a Personal Loan is typically fixed for the whole loan term. This means that the borrower knows exactly how much they will need to pay each month.
Advantages Of a Personal Loan
A Personal Loan provides several advantages over other loans:
- It requires lesser documentation
- It takes less time to get processed
- It provides flexibility in usage
Unlike other loans, it has a shorter repayment period ranging from one to five years. The fixed monthly payments make it easy to budget, and the interest rate is typically lower than that of a credit card. However, it is essential to look around for the best interest rates and borrow only what you need.
How is a Personal Loan EMI Decided?
Three factors determine the EMI for a Personal Loan.
- The most crucial one is the interest rate, which will help determine the size of the monthly payment.
- The loan term will also play a role, as a longer term will result in a smaller EMI and vice versa.
- Finally, the size of the loan (Principal) will also impact the EMI.
How To Calculate a Personal Loan EMI?
You can calculate the EMI amount you will be required to pay each month using the formula:
EMI Amount = [P x R x (1+R) ^N]/[(1+R)^N-1]
Wherein P ïƒ principal, i.e., the original loan amount given by the lender on which the interest will be calculated,
R ïƒ rate of interest set by the bank/NBFC,
and N ïƒ loan tenure in months.
For example, consider a Personal Loan of Rs. 1 lakh at an interest rate of 9% for five years., The EMI payable per month will approximately be:
EMI = [100,000 x 9/100/12 x (1+9/100/12)^60] / [(1+9/100/12)^60-1] = Rs. 2076.
The table below shows the yearly repayment schedule for the loan.
| Year | Principal | Interest | Total Payment | Total Balance |
| 2022 | Rs.12,297 | Rs.6,386 | Rs.18,683 | Rs.87,703 |
| 2023 | Rs.17,737 | Rs.7,173 | Rs.24,910 | Rs.69,967 |
| 2024 | Rs.19,400 | Rs.5,510 | Rs.24,910 | Rs.50,566 |
| 2025 | Rs.21,220 | Rs.3,690 | Rs.24,910 | Rs.29,346 |
| 2026 | Rs.23,211 | Rs.1,699 | Rs.24,910 | Rs.6,135 |
| 2027 | Rs.6,135 | Rs. 92 | Rs. 6,228 | |
| Rs. 1,00,361 |
To summarize,
Loan Amount = Rs. 100,000
Total Interest Due = Rs. 24,550
Total Amount Payable = Rs. 1,24,550
EMI = Rs. 2076.
Online Personal Loan EMI Calculator
There's an easier way to calculate monthly EMIs than doing all the math. One of the better online calculators is the Poonawalla Fincorp Personal Loan EMI Calculator, which is exceptionally convenient and comes with an intuitive user interface.
Simply enter the required loan amount, interest rate, and loan tenure, and the calculator instantly and accurately calculates your monthly payouts. The calculator can be used to compare loans from different financial institutions, as each institution charges different interest rates. The tenure may also vary across lenders. This way, you will be able to determine the best place for your Personal Loan with an EMI that matches your budget.
Conclusion
A Personal Loan can be a thoughtful way to get funds without risking your personal or professional assets if planned well. Repaying the loan on time can also boost your credit score. Although Personal Loan interest rates are higher than secured loans, you can enjoy relatively affordable rates if you have a good credit score and meet all the eligibility criteria.
However, it is best to take a Personal Loan to meet significant expenses or other urgent needs. It shouldn’t be availed for making unnecessary purchases or investing in risky ventures.
Poonawalla Fincorp ranks among India's premier financial institutions, and our Personal Loans are designed to be quickly processed and disbursed with minimal documentation requirements. We offer Personal Loans up to Rs. 30 lakhs, competitive interest rates, complete transparency, zero hidden fees, and the maximum flexibility required to manage repayments easily.
