A personal loan is one of the most widely applied loans in India as it is an unsecured loan with no end-usage restriction. It is offered by lending organisations to borrowers with minimal documentation, and can be repaid by them as per the terms set by the respective financial institution. One such option of repaying the loan amount is by EMIs or Equated Monthly Instalments. 

However, to ensure that it does not create any financial burden on the interested borrowers, they must be aware of a few essential aspects like loan EMI.  Moreover, the best and most accurate way of financial management is by using a personal loan calculator. This process is discussed in detail below.

Steps to Calculate EMI Using Personal Loan Calculator

When using a personal loan calculator, it shows you the desired result in a split second. Moreover, since its formula is computerised, there is no issue of inaccuracy. The steps you need to follow for this purpose are as follows:

Step 1: Visit the website whose EMI calculator for a personal loan you are accessing.

Step 2: Feed your total personal loan amount.

Step 3: Select the interest rate of your loan, i.e., in percentage.

Step 4: Put in the loan tenure of your loan, i.e., in years or months

For this purpose, sites often provide a slider to select the value. So, you can use that or feed in the numbers manually. It will help you determine the personal loan EMI along with interest you will be liable to pay over the loan tenure. 

This EMI and interest chart further determines whether you can afford this personal loan. Moreover, there is also a fixed EMI-to-income ratio that determines your eligibility for a loan. You can check this using a personal loan eligibility calculator.

What Is the Formula for Calculating Personal Loan EMI

Calculators across all platforms use a formula involving principal amount, tenure, and rate of interest data. The formula is as follows:

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

Here, 

EMI denotes equated monthly instalment

P denotes the principal amount

R denotes the rate of interest

N denotes tenure

However, since this formula is complex and difficult to perform manually, we use an online calculator. For example, suppose Mr A plans on taking a personal loan of Rs. 20 Lakhs for 8 years at an annual interest of 12%, then the applicable EMI amount will be difficult to calculate. However, putting the value on the online calculator shows a personal loan EMI of Rs. 32,506. 

Benefits of Using a Personal Loan Calculator for Financial Planning

The following are the benefits you can derive using an online EMI loan calculator for financial planning:

  • Brings out the most competitive interest rate

EMI loan calculator help in finding the most competitive rate as you adjust its different parameters. In other words, by changing the interest rate and tenure, you can find the best rate along with an affordable EMI amount.

  • Helps in budgeting your repayment

As the online calculator decides your EMI amount by considering your loan amount, tenure and interest rate, it is easy to adjust. So, if you feel the EMI amount is too high to create financial pressure, you can increase the tenure or adjust the principal amount. On the other hand, if you feel you can afford a higher EMI reduce the tenure to service the loan quickly. 

  • Calculates the total cost of the loan

Personal loan calculators bring out the total cost applicable to the amount. Moreover, this includes not only the rate of interest but also the cancellation charges, processing charges, legal charges, part payment charges and others. As a result, you get a clear picture of the loan's affordability. 

Factors to Consider while Availing Personal Loan

You must consider the following essential factors while availing a personal loan. As a result, it helps set a better term and instalment amount in the long run:

  • Loan tenure

The maximum tenure set by most financial institutions is five years. However, it is always preferable if you can repay it in a shorter duration. Nevertheless, remember it will increase your EMI amount. So, to ease the repayment, you may have to feed a higher tenure amount. There should be a balance.

  • Interest rate

Lenders will set an interest rate on your loan amount depending on the factors like income stability, age, years of experience, credit score, and whether you are salaried or self-employed. In addition, your loan tenure, repayment capacity, the existence of previous EMI and other things will also affect the rate. So, it is best to compare the interest rate offering of various lenders before deciding on one.

  • Processing fee

Apart from the interest rate, lenders also charge processing and other fees for sanctioning loan amounts. However, these are usually one-time fees you will have to pay at a specific rate on the personal loan amount. 

Remember, it varies from one institution to another. Also, it can impact your overall cash outflow. Under other charges, you may face stamp duty, cheque bounce rate, late payment fee, issuance charge and more.

  • Repayment flexibility

This is one of the most crucial factors to consider while availing loan and involves checking whether the lender offers the option of settling the loan sooner. Also, what will the cost you may incur? When you prepay a loan, it releases you from the stress of paying regular EMI on time. 

  • Terms and condition

Before taking a loan, read all the terms and conditions to make an informed decision. As a result, you could avoid any future hassle and unpleasant experience.

  • Customer service

The last and most important factor is ensuring your picked financial institution has high standards while providing customer service. As a result, you will be able to control your finances better, keep track of your repayment and approach the lender when required.

The above is the standard way to calculate personal loan EMI using a personal loan calculator. It helps you perform complex calculations in seconds, eliminate inaccuracy and implement a strategy for better financial management. Also, consider the abovementioned factors when applying for a personal loan to avoid discrepancies.