Personal loans, a kind of unsecured loan, can serve a variety of purposes. Such as that elusive holiday you have meant to take, that dream car you have had your eye on for a while. Even if you are in a pickle financially and in need of instant funds, the ready availability with mostly instantaneous approvals makes personal loans an attractive option. But beware! Personal loans without proper planning and feasibility checks can be a financial disaster. Fortunately, due to the wonders of mathematics and technology, it is quite easy to gauge one’s eligibility in gaining a personal loan. It also helps in laying out a well-defined repayment schedule. There is an easy tool to understand this called the EMI calculator.
An Personal Loan EMI calculator is able to give you a complete picture. It shows how your repayment schedule will look throughout the tenure of your loan. Hence it helps you in understanding how to manage your finances accordingly.
Let us look at some of the features of an EMI calculator.
The total cost of the loan
With an EMI calculator, one can easily calculate the total interest they have to pay when applying for the loan. It calculates the interest of each year for the length of the loan tenure. Hence you get an estimate of how much more you have to pay over the principal amount.
Comparing different institution’s lending rates
An EMI calculator is the ideal tool to compare the lending rates of the various institutions, i.e. banks and NBFCs available in the market. It provides the insight so that one does not end up paying way more than what is optimum while applying for a loan. It is possible that different banks have different lending rates and tenure conditions. The EMI calculator helps in selecting the best option.
Avoid errors in manually calculating EMI
The manual calculations in figuring out your EMI can get a little daunting. Hence there is a chance of error on your part. However, with an EMI calculator tool, this hindrance gets eliminated easily. One just needs to fill in the relevant values and voila all the calculations spill out.
Helps in proper planning through the tenure
The EMI calculator lets us plug in different values so as to help us arrive at an EMI, which is possible for us to pay. Hence it allows endless permutations and combinations. This helps us in finding the most suitable value for EMI. In other words, it helps to make sure that your income to debt ratio is below 50%. This exponentially increases one’s chances of getting their loans approved.
Proper Amortization schedule
An amortization schedule is a detailed table explaining all the details regarding your loan once you have finalized on an offer.
It details the
- Total interest to paid
- The total extra cost over the principal amount
- The entire period to pay off the loan with a detailed account of the amount to pay. Takes in all the predetermined conditions mentioned and all charges
- As is the process, the EMI payment remains so, but the interest and principal keep on changing per payment. This gets reflected in the table. This process of payment through EMI over a period is amortization.
Granted you can use the EMI calculator but knowing the formula used is just a better way to stay informed. So here is the formula used in the calculation of an EMI
EMI (Equated Monthly Installments) = [P x I x (1+I) ^T]/ [(1+I) ^ (T-1)]
- P stands for the principal amount
- I is for the interest rate
- T is for the loan tenure
This is the standard formula that online EMI calculators use. It is fairly straightforward but still, to avoid mistakes EMI calculator tools are in use for their ease. Some variables may get added, but that depends on the type of loan.
Now that you have understood and learned the use of the EMI calculator do use it. Calculate the amount you are willing to pay each month as EMI as per your needs and ability. Visit all the good lenders and have proper discussions and figure out the best possible plan for your personal loan.
There are a lot of good options available, the market leaders being HDFC personal loans and Bajaj Finserv personal loans. Look at all options and weigh out what works best for you and then apply for the loan to take up that dream of yours. All the best!