3 Reasons why People Rely on EMI calculator to save the hassle of Manual calculation of EMI

If you’ve ever shopped for electronics or other expensive goods online, you’ll have probably been offered to make the payment via EMI, or Equated Monthly Installments, via a credit card. Similarly, when an individual takes a loan, the repayment is done via EMIs which is calculated based on factors such as principal amount, interest rate, and repayment tenure.

In an effort to save on paying interest, one of the mistakes that most borrowers make is going with the lender who offers the lowest interest rate. However, that should not be your primary deciding factor when taking a loan; what should be instead, is your monthly EMI amount. This is because your ability to repay your EMIs on time has a direct impact on your credit score.

If you take a loan of Rs. 1 lakh on an annual interest rate and repayment tenure of 24 months, the borrower will have a monthly EMI of Rs. 4,992. On the same principal amount and interest rate over a 12-month tenure, your EMI will be Rs. 9,168. This is an 83% increase in the EMI, compared to the loan taken on the 24 months repayment tenure. Thus, knowing your monthly EMI amount is extremely important!

How to Calculate Monthly Loan EMI

One can calculate their monthly EMI either manually or using a handy personal loan calculator. With the personal loan calculator, you can calculate your monthly EMI with the following details:

1. Principal loan amount (how much money you want to borrow)
2. Interest rate
3. Loan tenure (the duration for which the loan is sanctioned)

Here is the formula to manually calculate your EMI:

Personal Loan EMI= [ P X R X (1+ R) ^N] / [(1+R)^N-1]

:

P is the principal or loan amount that is borrowed

R is the rate of interest charged on the principal (monthly rate)

N is the loan repayment tenure or the number of monthly installments that you have to pay every month

Let’s use an example to explain how the formula above is used to determine your loan EMI amount. For a loan of Rs. 1 lakh with a 1-year duration and 20% interest rate per annum, first, we need to convert the loan tenure into months. The interest rate also needs to be converted into months, which can be done by dividing the interest rate by 12 months. Therefore, the monthly interest rate is 20/12= 1.66%. The loan tenure must also be converted into months, and in this example, the tenure will be 12 months.

With these three variables, we need to add them into the formula as follows:

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

EMI= [1,00,000 x 1.66/100 x (1+ 1.66/100)^

12/ [(1+1.66/100)^ 12-1)

EMI= Rs. 5,089.5

Not only is this calculation tedious, but it is also lengthy! Additionally, it’s natural that one can make errors while manually calculating the EMI which will have a negative effect on your finances. That is why it’s advisable to use a personal loan calculator.

How to Use Personal Loan EMI Calculator

With a personal loan calculator, all you need to do is enter the principal amount, monthly interest rate, and loan tenure. After entering these variables in the EMI calculator, it will instantly show the monthly EMI one needs to pay. Remember to convert your interest rates and loan tenure into months before entering them into the calculator in order to get the EMI amount.

It’s important to remember that your EMI amount will be inversely proportional to the loan tenure. This means that although the interest to be repaid will increase when availed over a longer tenure, the EMI amount will reduce when the loan is repaid on a longer tenure.

The EMI amount can be adjusted easily by increasing or decreasing the loan amount and tenure. If you decide you prefer to pay a higher EMI amount that what was shown in your initial result, you can increase your loan amount if you’re eligible to do so. If your EMI amount is higher than what you can afford to repay each month, simply reduce the principal amount to be availed, or increase your repayment tenure.

Benefits of Using Personal Loan Calculator

While one can of course manually calculate their EMI amount, the EMI calculator has more benefits than the former:

1. Accuracy: Manually calculating your EMI means that you will have higher chances of making errors in your calculations, which will provide inaccurate information. This will have a grave and undesired impact on your personal loan and finances! The formulas incorporated in the personal loan calculator will give you an accurate display of your EMI amount, within a few seconds!
2. Saves time: Using the personal loan calculator saves time, as it’s quick and simple. You can make numerous calculations in only a few minutes by entering all the parameters and letting the personal loan calculator does all the hard work!
3. Financial Planning: The personal loan calculator will help plan your budget with showing you how much your EMI will amount to, based on the parameters you’ve entered.

Conclusion

Knowing your personal loan EMI amount is important when it comes to planning your finances. Use the personal loan calculator to give you a quick and accurate result before applying for your loan.

You can also read: 5 Student lifestyle hacks for effective personal finance