Articles

What is Personal Loan EMI and How Calculators Can Help?

by MyMoney Mantra FinTech (Financial Technology)


A loan availed to meet purposes such as repayment of debts, celebrating a festival, bearing the expenses of a marriage, taking a vacation, buying electronics, home renovation, or dealing with unexpected medical expenses is known as a Personal Loan. Typically unsecured, these loans are offered on the credibility of the borrowers, along with their capacity to repay the amount. The amount that can be procured through this loan varies from a minimum of Rs. 50,000 to a maximum of Rs. 50 Lakhs, while the tenure of repayment may range from 12 months to 60 months.

 

The borrower must repay the amount of the loan, in the form of Equated Monthly Instalments or EMIs. EMI is nothing but a fixed amount of payment including both, the principal loan amount as well as applicable interest that a borrower has to make to the lender at monthly intervals. The EMI is a meticulously calculated figure, which is agreed to by both parties involved. Repayment of a loan through EMI is a continuous process which lasts the entire period of that loan until the whole amount, along with interest is paid off.

 

Since Personal Loans do not require you to have any collateral as security, the rate of interest charged on them is usually high. This, in turn, implies EMIs.

 

Understanding EMI Calculation

Because you may have to pay the EMIs for any number of months between 12 and 60, it is crucial that you completely understand the intricate calculations involved. Not only should you take a keen interest in the applicable rate of interest, but also in the method which the lender uses to arrive upon an EMI for your loan. This will help you understand the implications of your credit in a more efficient manner, while also allowing you to make the right calls concerning prepayment, foreclosure as well as availing the entitled tax benefits.

 

As mentioned before, an EMI essentially comprises two components - Principal and Interest. At the very beginning of your repayment cycle, the interest forms the more substantial part of your EMI. However, as time progresses, the interest reduces. Eventually, the principal becomes the more significant part of the monthly instalment.

 

A Personal Loan EMI usually depends on three aspects - principal, interest rate, and tenure. 

 

Principal denotes the actual amount borrowed by the applicant and has a direct impact on the EMI. The higher the principal, the larger the EMI.

 

The interest rate is the cost of borrowing the money. More often than not, the rate is determined by the borrower’s credit history, income levels as well as their ability to repay the amount.  The rate may be fixed or floating, depending on the terms of the loan. Regardless the type of interest, the higher the rate, the more is the EMI.

 

Tenure is the period over which the borrower agrees to settle the loan. It is inversely proportional to the EMI. Hence, a borrower looking for smaller EMIs should opt for a longer tenure.

 

Loan Amortization Table

The Loan Amortization Table offers a systematic breakup of the loan repayment cycle. It includes numerous components - right from the outstanding principal to the EMI and from the principal paid to the interest paid, complete with the outstanding amount after every monthly instalment.

 

The table proves to be a useful tool when it comes to assessing the schedule, as well as helps you understand when it would be best for you to opt for prepayment or foreclosure facilities.

 

Below is an example of an amortisation table, for a loan of Rs. 20,000 to be paid in 60 EMIs, over a period of 5 years.

 

Month

 Opening Balance

     EMI

Principal

Interest

 Closing Balance

1

Rs. 20,000.00

Rs. 377.42

Rs. 294.09

Rs. 83.33

Rs. 19,705.91

2

Rs. 19,705.91

Rs. 377.42

Rs. 295.32

Rs. 82.11

Rs. 19,410.59

3

Rs. 19,410.59

Rs. 377.42

Rs. 296.55

Rs. 80.88

Rs. 19,114.04

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

57

Rs. 1,494.10

Rs. 377.42

Rs. 371.20

Rs. 6.23

Rs. 1,122.90

58

Rs. 1,122.90

Rs. 377.42

Rs. 372.75

Rs. 4.68

Rs. 750.16

59

Rs. 750.16

Rs. 377.42

Rs. 374.30

Rs. 3.13

Rs. 375.86

60

Rs. 375.86

Rs. 377.42

Rs. 374.29

Rs. 1.57

Re. 0

 

 

EMI Calculator

The EMI for any amount of loan can be calculated using a simple math formula.

EMI = [P x R x (1+R)n] / [(1+R)n - 1]

 

Here,

P ~ Principal

R ~ Monthly Rate of Interest

N ~ Loan Tenure (no. of months)

The lender usually mentions an annual rate of interest. For the purpose of the above formula, you can easily convert the yearly rate to monthly, by dividing it by 12.

 

However, to make thing more straightforward, you can always use MyMoneyMantra’s EMI Calculator. Such a calculator acts as an instrument which utilises the following essential components to help you determine the EMI that you will need to pay.

 

         Total amount needed to be borrowed

         The entire loan duration

         Applicable interest rate

         The processing fee charged by the financial institution.

 

The parameters as mentioned above are fed to an algorithm, and it does the rest. Apart from helping you deduce the amount of each monthly instalment, the calculator also offers the following benefits:

 

         It helps in planning prepayments

         It is readily available

         It provides 100 percent accuracy

         It aids instant calculations

         It provides graphical interpretations

         It offers a comprehensive amortisation table

 

In simple words, an EMI calculator will help you make an informed decision when you set out to Find a Personal Loan offer that best suits your needs. 

 

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989. 

 

Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers. 


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About MyMoney Mantra Freshman   FinTech (Financial Technology)

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Created on May 23rd 2018 07:48. Viewed 552 times.

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