Dealing with personal finances is always hectic and if you are planning to borrow some money, it’s even more hectic. It does not matter if you are getting personal loan for wedding, home renovation or medical emergency any borrower needs to know how much he will pay each month. Here an EMI calculator is just useful.
You can make the borrowing process smoother and predictable using an EMI calculator for a personal loan. In a very short span of time, it provides a lucid estimation of your monthly outflow – enabling you to plan better and sustain no surprises.
What is an EMI calculator
An EMI calculator is a very convenient online agent, which enables you to calculate how much you will be paying back monthly depending on only three important factors.
- Loan amount
- Interest rate
- Repayment tenure
Through the input of these values into the EMI calculator, you’ll get to see the amount you will pay monthly within seconds. It comes in handy particularly when you’re comparing loan offers or when you are deciding the amount to borrow.
Suppose you need to get a loan of Rs. 5 lakhs for 3 years with the rate of 11%. Rather than manually calculate numbers, you can get to know how much you will be paying back monthly using an EMI calculator and then plan ahead.
Why use an EMI calculator for personal loan planning?
Here are some of the best reasons why utilizing of an EMI calculator makes sense:
1. Gives instant results
No need to involve complex formulae or spread sheets. Key-in loan amount, interest rate and tenure and get EMI in seconds.
2. Helps you choose the right tenure
Want lower EMIs? Extend your repayment period. Prefer to finish faster? Choose a shorter term. The EMI calculator allows you to experiment with various combinations so as to find out what is most appropriate to your monthly budget.
3. Let’s you compare multiple loan offers
Different interest rates are charged by different lenders. Using EMI calculator, you listing options side by side for finding the most affordable plan.
4. Avoids financial stress
A clear picture of your actual monthly obligation will guide you properly in making spending judgments. There will be remaining amount for other expenses and savings after each EMI.
How is EMI calculated?
Even though EMI calculator does all the work for you, it would still be good to have the knowledge of EMI Calculator’s fundamental formula which is:
EMI = [P x R x (1+R)^N] / [(1+R)^N – 1]
Where:
- P = Principal loan amount
- R = Monthly interest rate (annual rate divided by 12 and converted to decimal)
- N = Number of monthly instalments
Manual application of this formula is not that easy, and that is why an EMI calculator is very useful.
When Should You Use a Simple Interest Calculator?
Although, EMI calculators are awesome for personal loans (which are mostly for reducing balance interest), a simple interest calculator may prove useful for temporary loans, informal borrowings or interest only loan plans.
Simple interest is calculated using the formula:
Simple Interest = (P × R × T)/100
Where:
- P = Principal
- R = Rate of interest per annum
- T = Time in years
Use it when the interest does not become accumulative time and when the terms of repayment are neither complicated.
Tips to Use EMI Calculators Effectively
• Check affordability: Do not take into account the EMI amount only. Ensure that it fits in your monthly budget comfortably.
• Experiment with scenarios: Experiment with different tenures or loan amounts to find out how EMI changes.
• Don’t forget other charges: Some creditors charge processing fees or late payments fees. These should be taken into consideration when budgeting.
• Plan for the future: Take into consideration salary changes, inflation and emergencies. Your EMI should not bust your pockets.
Final thoughts
The decision to take a personal loan is a significant financial decision – but it doesn’t have to be a daunting one. An EMI calculator will help you come up with smart and well-informed decisions regarding the amount of money to borrow, amount of time to repay and the kind of monthly commitment you are making.
With money flowing at a rapid pace in today’s world, tools such as EMI calculators have got your covered – leaving you in control of things, so your personal loan ride is as smooth, hassle-free as can be.
