A personal Loan is an unsecured loan used to combat any emergency. The personal loan is disbursed to your bank account and converted into EMI. An EMI is nothing more than your loan's monthly installment, which is composed mainly of two components: interest and principal. The interest component of your monthly payment will be higher than the principal throughout the first few years of your loan payback period, but as you get closer to the closing date, things start to turn around.
It's important to know the factors that affect your Personal Loan EMI. Below are the prime factors that affect your EMI:
Loan Amount: It is the amount that you draw from the bank as a personal loan. You should know that the pre-approved loan amount is different from the loan principle. The pre-approved loan amount is what you can apply for, whereas the principal amount is what you get from the bank. In short, the final sanctioned amount is the principal loan amount that you have to repay.
Loan Repayment Tenure: When applying for a personal loan, your EMI is calculated based on your repayment tenure. It is the period in which you need to repay the entire principal amount (added with interest rate). The personal loan EMI decreases if you have a longer repayment tenure. For a personal loan, the tenure can be less than 12 months and go as high as 5 years, depending on your eligibility.
Mathematically, the EMI is inversely proportional to repayment tenure. Most people prefer a longer repayment tenure as it concludes to a low EMI amount that remains manageable.
Rate of Interest: The interest rate is the extra amount that borrower will pay with the principal amount during the personal loan repayment tenure. The interest rate for a personal loan varies between 11 to 15 percent, depending upon your credit score, current salary, and a few other factors. Moreover, the rate of interest differs from one bank to another. To read about the latest Personal Loan interest rates, click here.
It's also essential to note that you can choose from the fixed and floating interest rates that also affect your EMI amount.
These three factors are used to calculate the EMI. However, one crucial factor is considered after loan disbursal. The factor is lumpsum payment.
Most personal loan lenders allow you to pay a lump sum amount during a financial year. This amount is settled with the principal loan amount and hence decreases the EMI significantly.
A personal loan EMI calculator is an online tool to calculate the EMI amount you have to pay every month until the repayment tenure. EMI Calculator includes three components: loan amount, Interest rate, and Loan tenure. The EMI calculator is highly effective in knowing what amount you must pay monthly for the required loan amount. It helps you determine whether you can afford the personal loan EMI without affecting your monthly budget.
It's crucial to know how to use the personal loan EMI calculator. Calculating your loan EMI helps track your ongoing budget and how much you can pay for the personal loan. The personal loan has loan amount, loan tenure, and interest rate as three components to calculate the exact EMI amount.
The basic formula to calculate the personal loan EMI amount is as below:
EMI = [P x R x (1+R)^N]/[(1+R)^ (N-1)]
Below is the meaning of abbreviations used in the given formula.
Let's understand this with an example.
Suppose Rohan is looking for a personal loan of Rs. 10 lakh for 2 years at a rate of interest of 20% p.a.
The EMI Calculator will give you the monthly amount you must pay for the personal loan. Hence, you don't need lengthy calculations to calculate your personal loan EMI.
Just put the values and calculate how much your personal loan EMI is.
There are multiple reasons to use a personal loan EMI calculator before applying. Below are a few of them.
Time Savings: Running lengthy calculations to calculate the loan EMI is tricky and time-consuming. However, the EMI calculator for personal loan eliminates that issue and give you the exact EMI within seconds. The personal loan EMI calculator is simple to use and quick to check. It is highly effective to calculate your monthly debt if you take a personal loan.
Accuracy: You can't be sure about your lengthy EMI calculations. The problem increases if your personal loan amount is big. Hence, rechecking is the only alternative left to validate your calculation. However, the EMI calculator for personal loans helps you get accurate results in a single go.
Choosing a Lender: With multiple lenders/banks offering a personal loan, it becomes tricky to choose one. Calculating your personal loan EMI is the right way to find which offers the low EMI. Calculating your personal loan EMI is the right tool to find an affordable lender offering good loan amounts and lower interest rates.
Examine your Financial Situation: Knowing whether you can afford the EMI before applying for a personal loan is essential. An EMI calculator helps you check the affordability of your EMI w.r.t your budget.
If you have an ongoing personal loan, it's essential to manage your monthly budget to ensure its timely repayment. Yet, many people skip the EMI date and face multiple issues. If you are one of those who are unable to pay the personal loan EMI, you must know the preferred status of your personal loan as per the repayment date.
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0-30 days |
You are given a grace period to pay the minimum payment without penalties. |
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30-60 days |
After 30 days, you are imposed with late fees and possible penalties, including high-interest rates. Remember, it will also impact your credit score adversely. |
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60-120 days |
After 60 days, the lender could ask for the full loan amount. Moreover, the account is flagged to default status. |
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120-180 days |
After 120 days, the debt is marked by the lender as a loss and sold to the collections agency. However, the lender can take legal action against the borrower for debt settlement. |
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