How is Loan Amount Calculated?

Posted by Ankit Verma on February 18th, 2021

In the current dynamic environment, there are various loan options available for individual borrowers in India. Personal loan forms a great source of financial support in times of emergency. Instant loan apps are built with intelligent technology that helps in calculating the loan amount as Equated Monthly Instalment (EMI). Once the EMI amount is clear, borrowers feel more confident about applying for the loan.

EMI refers to the amount payable by the borrower to the lender on a monthly basis. In simple terms, EMI consists of the principal loan amount, the rate of interest at which borrowers take the loan and repayment tenure of the loan.

The percentage of interest is one major factor that affects the EMI to be repaid. Knowing the interest rate beforehand can save borrowers from the financial burden of loan repayment and avoid delay in clearing EMIs. Depending upon the loan type, the rate of interest remains fixed or floating. Hence, to calculate the loan amount, it is important to consider the interest rate.

Various instant loan apps are easily available on Play Store. Hence, accessibility to loan EMI calculators and interest calculators is easy, giving out quick and accurate results in no time. Manual calculation involving personal loan and related aspects can be time consuming and can lack accuracy. If your credit score is good, you may get an advantage of low interest rate on the loan.

Interest can be simply calculated using the formula:

P x r x t ÷ 100

P = Principal

r = Rate of Interest

t = Term of the loan/deposit in years

Why Should EMI Calculators be Used to Calculate the Loan Amount?

Using an EMI Calculator, you can know the exact payable amount before moving ahead for a personal loan. Clarity on getting EMI figures encourage borrowers to decide on the loan amount quickly and move ahead with the process of the loan application. Some key benefits include:

• Useful for Different Loans: EMI calculator is useful for acquiring different types of loans, home, car, education etc. There are loan specific EMI calculators also available with some credit providers.

• Flexibility: The EMI tool is flexible enough to adjust the variables (tenure, interest, amount) to derive a suitable monthly instalment.

• 100% Accurate Results: Error free calculations are done in minutes. Depending upon the correct rate of interest, accurate EMI results are derived at just one click.

• Presentation: Results from the loan calculator are presented in an easy-to-understand numerical format and sometimes delivered in a pictorial format, depending upon the lender’s websites.

Why Calculate the Loan Amount Before Application?

The need for an instant cash loan can arise anytime. Depending upon the financial need, it is good to have clarity on the required loan amount before initiating the loan process. These types of loans are usually quick and disbursed immediately after the application procedure is completed and approved. Various other loans such as education loan, home loan etc. take time for approval.

While calculating a loan amount, also consider transaction charges, processing fee or other hidden charges, if any. Missing these petty charges can bring differences in the calculation of the loan amount. Hence, cover all the aspects that will help you to derive a suitable loan amount with an easy to repay EMI to meet your financial needs.