Benefits Of Using Personal Loan EMI Calculators Over Manual Calculations

A personal loan is one of the most popular credit products and can be used for a wide range of purposes such as for a vacation, buying gadgets or appliances, renovating home or even for dealing with a medical emergency.

Like all loans, when taking a personal loan both the borrower and the lender agree on the interest rate that will be applied to the principal amount. This interest rate is arrived at by the lender after conducting a detailed analysis of the borrower's creditworthiness and the interest rates prevailing in the market, and the borrower would have understandably negotiated for a lower interest rate.

The repayment of the principal amount and interest is spread over the tenure of the loan into equated monthly installment (EMIs). The calculation of EMI can be done using personal loan EMI calculators or manually.

The EMI Calculation

The formula that is usually used by lenders to calculate the EMI is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Here, EMI = Equated Monthly Installment

P = Principal Amount
R = Monthly Rate of Interest
N = Loan Tenure in Months

If the equation appears complicated, let’s understand it with the help of an example. Suppose the principal amount of the loan is Rs 1 lakh, the interest rate is 10% per annum and the duration is five years. In this case, the EMI would be Rs 2,125.

This means the borrower would pay a total of Rs 1,27,480 over five years to the lender. Of this, Rs 27,480 will be the interest charged.

Total Payment = Principal Amount + Total Rate of Interest
Rs 1,27,480 = Rs 1,00,000 + Rs 27,480

The EMI of a personal loan, or any other loan for that matter, has two components—principal and interest. The interest component decreases over the years while the principal portion rises.

Advantages Of Personal Loan EMI Calculators Over Manual Calculations

• Ease In Calculation:

Manual calculation of EMI on a personal loan is complex and often takes a lot of time. It is not a simple calculation and can lead to errors and protracted negotiations with lenders. It is good to know your math but one has to put a lot of time to arrive at the right number to derive the right EMI.

• Ease In Access:

Most lenders provide Personal Loan EMI Calculator on their websites where the installment can be arrived at just putting the principal amount, rate of interest and duration of loan. It is easy to access and even easier to use.

• Ease In Calculating Full Repayment:

The personal loan EMI calculators help you compute the full term of the loan and the breakup of the principal amount and interest that you will be paying for the tenure of the loan. Also, you can change the tenure easily to see the amount of EMI that will be sustainable over the period.

• Ease To Compare:

You can easily compare a loan for five years at, say, 10% and a loan for three years at 15%, or any other permutation and combination for that matter. You can easily calculate what is best for you by using personal loan EMI calculator that will give you not just the right EMI, but also how much will you be spending on interest to repay the loan.

Additional Costs

Borrowers must always add the application fees and the tax on them when using personal loan calculators to arrive at the EMI. These charges may not reflect directly in either the manual calculation or personal loan EMI calculator. You have to keep these charges in mind when finalising any deal.

Conclusion

The principal loan amount and the interest payable every month together is the total amount to be repaid to the lender during the entire tenure of the loan. Calculating this EMI manually can be daunting. And if you have to compare different interest rates and different tenure, it becomes even more difficult.

IIFL Finance provides an easy-to-use personal loan EMI calculator on its website, where you can not only calculate the EMI but also see the interest component separately. You just have to input the principal amount, term and rate of interest to get the EMI and interest cost over the tenure of the loan.

If you need personal loans, visit the nearest branch of IIFL Finance and secure the funds in just a few hours. If you are running short of time, apply online on IIFL Finance website and get your loan processed in less than five minutes.