According to data released by the Reserve bank of India, the personal loan segment grew by 20% and accounted for around 8% of the lending sector portfolio. Such growth can be attributed to an increasing number of individuals opting for personal loans to meet various funding requirements.
Several lenders provide these advances at competitive rates of interest. Borrowers must avail a loan that keeps the EMIs within their repayment capacity. One can thus use online tools like a personal loan EMI calculator to compare offers and opt for an advance with affordable EMIs.
However, before using the calculator for EMI estimation, borrowers should first know about the factors that affect the EMI value.
Factors affecting loan EMIs –
The following factors can affect the EMIs on personal loans –
- Loan tenure – The duration for which you are availing the loan from a financial institution is known as loan tenure. EMIs on loans are inversely proportional to the tenure opted. It means that an extended tenure would lead to EMI reduction and vice versa.
- Principal – The total amount of availed from the lender is known as the principal. Any change in the principal amount is directly proportional to its EMIs payable. It means that the greater the loan amount, higher its EMIs and vice versa.
- Interest – When you opt for a loan, lending institutions charge interest on that amount at a specified rate, known as interest or lending rate. It can vary from one lender to another. Similar to the effect of loan principal on EMIs, interest rate levy is also directly related to the EMIs.
These rates differ from one lender to another and are also affected by borrower eligibility. Before applying, one should thus know the factors affecting the personal loan interest rate.
Lenders provide EMI calculators to help users assess their EMI affordability for suitable loan selection. These tools use the factors mentioned above for EMI computation. An individual can thus utilise this tool to make suitable assessments and proceed.
How to use a personal loan EMI calculator?
To compute EMI, one needs to input the following values in the personal loan calculator –
- Enter the loan amount you want to avail.
- Select interest rate offered by the lending institution.
- Enter your preferred repayment tenure.
After you enter these details, the calculator will display the EMI amount, total loan liability as well as the total interest payable. The calculator computes the EMI amount using the formula –
E = P x R x ( 1 + r) ^ n/ (1 + r) ^ n – 1)
E = EMI
P = Principal
R = Rate of interest
N = Loan tenure
Benefits of a loan EMI calculator
There are several benefits of using an EMI calculator before applying for a personal loan. Here are a few of them.
- Accurate EMI computation – By using a loan instalment calculator, borrowers will be able to quickly and accurately compute the EMI amount they need to pay. Since no manual calculation is required, it significantly reduces the chances of errors and helps with accurate estimation and financial planning.
- Suitable repayment plan – Borrowers can customize the loan and tenure value on the calculator to arrive at a suitable installment amount that remains within their affordability. It will enable them to set aside the required amount every month for repayment. Furthermore, they can frame a suitable repayment plan easily, which can help pay EMIs in time.
Note that timely EMI payment helps strengthen one’s repayment history, which will help boost their credit score, an important parameter for personal lending.
- Gain an idea of one’s repayment schedule – Apart from computing the total interest, total loan amount and the EMIs, most online loan EMI calculators also display the repayment schedule or amortization chart. Borrowers can check the principal, interest amount, loan paid to date and outstanding amount for the remaining repayment period with this chart. Knowing the repayment schedule before applying also helps one decide whether prepayments would be feasible or not.
Apart from knowing the EMI amount, one should also go through the eligibility criteria and list of documents specified by the lending institution before applying for a personal loan.
Some lending institutions such as Bajaj Finserv also provide pre-approved offers to their existing customers, which enables them to apply for a personal loan without documents and makes processing hassle-free.
Apart from personal loans, these offers can also be availed on other unsecured financial products such as credit cards, business loans, etc. You can check your pre-approved offer by entering details like your name and contact information.
First-time borrowers, however, need to provide all documents related to personal loans. Thus, make sure to keep the essential documents handy before applying for quick processing of your loan application.