How Does A Personal Loan Emi Calculator Work?

Posted by Shashank Bhaskar on February 14th, 2020

A personal loan is an extremely popular loan among borrowers because it is both unconditional and unsecured. This means the borrower does not need to put up any security to avail the loan which makes it an excellent option to raise funds for different reasons. The borrower can also use the funds for whatever purpose he requires the funds for.

When you opt for a personal loan, it is very important to understand the amount you need to repay on this loan. Setting the right amount is extremely crucial to your monthly budgets because if you fail to repay these instalments, the lender starts to charge additional interest. In case of personal loan, the interest on unpaid instalment adds up quickly.

The smarter way is to take control of the monthly instalments in your own hand and the way to do this is through a personal loan EMI calculator. There is no need to wait till you apply for a loan to get the loan repayment schedule. With the digital revolution, most banks put up all information related to loans on their own website. You can use a personal loan calculator to find out the instalment amount.

It allows you to find out the monthly instalment amount for a given set of conditions:

• Loan amount
• Rate of interest
• Loan tenure

This information gives you the monthly instalment amount. Some calculators also provide other information like:

• Total interest paid over the entire duration of the loan
• Amortization schedule showing break up of each instalment into principal repayment and interest payment

The personal loan EMI calculator uses a formula to calculate this instalment amount. The calculator does not display the formula. It uses the inputs that you enter to automatically calculate the instalment amount.

The loan EMI calculator uses the following formula to calculate the monthly EMI:

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

Where

P = Loan principal

R = Rate of interest

N = loan tenure in years

This information can either be entered or set using a slider dragging tool. Depending on the lender and the type of loan you are opting for, some loan calculators also have an eligibility calculator attached. This means it will ask for inputs like your monthly income, outstanding loans, age etc to automatically calculate the principal amount of your loan that you will be eligible for. However, you need to enter other inputs like the rate of interest and the loan tenure.

These personal loan EMI calculators are available for free on lender websites. These calculators are extremely easy to use and give answers immediately on entering the inputs. The entire calculation is done automatically which saves the user the effort of waiting and checking the step by step procedure. It is also convenient to adjust the different inputs to see the impact on the EMI. This can help you decide the right choice and the right thing to do when it comes to your loan application. The personal loan calculator that has an eligibility calculator with it helps to understand eligibility. These calculators are extremely useful, and it is best to use these calculators before making your loan application. You will find this tool on your internet banking apps too.