The lending industry in India is growing by the day with different types of loans offered by various financial institutions. Whether you want to buy a home or car or wish to go on your dream vacation, you can finance it with housing, automobile, or personal loan, respectively.
These funds are available for a specific period and entail a certain rate of interest. Several parameters including loan tenure, interest rate, and amount determine the repayment installment.
Most lenders provide online calculators that allow you to determine the approximate monthly installment payable. These calculators are easy to use and provide instant results, allowing you to make informed decisions.
What is an EMI calculator?
Most loans are repaid in equated monthly installments (EMIs). Knowing the approximate EMI amount you will have to pay can help you plan your finances well.
This ensures you have no difficulty in making payments on time. An online EMI calculator can be beneficial in understanding the estimated installment and help you make an informed financial decision.
How to calculate EMI Online
EMI is the monthly installment you pay the lender over the loan tenure until the entire amount is fully repaid. The EMI comprises the principal repayment and the interest.
Generally, the total amount of the principal and interest is divided by the loan duration to calculate the monthly installment.
Often, the interest component in the EMI is higher during the initial loan tenure and it gradually decreases over a period.
Although the EMI remains constant during the entire loan duration, the allocation towards principal repayment and interest changes with every repayment.
Formula to calculate EMI online for a personal loan, home loan, and car loan
The mathematical formula of calculating the EMI is as follows:
E = P * r * (1+r) ^ n / [(1+r) ^ (n - 1)] where
E is the EMI
P is the loan principal amount
r is the rate of interest
n is the loan duration
For example, if you borrow INR 5 lakhs for a period of three years at an 8.5% per annum rate of interest, the EMI is INR 15,784.
Let us use the above formula to calculate the approximate EMIs on different types of loans.
Using an online personal loan EMI calculator, here is the breakdown between principal and interest payment.Loan Amount INR 5,00,000 Loan Tenure 3 years Rate of Interest 14% per annum Total Interest INR 1,15,204 EMI Amount INR 17,089
The table below shows the breakdown for a housing loan using a home loan EMI calculator:Loan Amount INR 50,00,000 Loan Tenure 20 years Rate of Interest 7.1% per annum Total Interest INR 43,75,840 EMI Amount INR 39,066
Let us now look at the approximate EMI for an auto loan using an online car loan EMI calculator.Loan Amount INR 7,00,000 Loan Tenure 5 years Rate of Interest 8.2% per annum Total Interest INR 1,55,660 EMI Amount INR 14,261
The above calculations are based on no prepayment or delays. If you decide to partially prepay some of the outstanding loan amount, the EMI will change, and you can check this by adjusting the amount you want to prepay. You will also be able to see the total interest you can save by prepaying some part of the principal loan amount.
How is an Online EMI calculator used?
You can easily find an EMI calculator online that not only provides instant results but also shows the breakdown between principal repayment and interest amount paid over the loan duration.
The calculator can be used to know the estimated installment for all types of credit facilities, such as home, car, or personal loans.
To calculate the EMI, you must enter the loan amount, the rate of interest, and the tenure (either in years or months, or both). Once you enter the relevant information, the EMI amount is reflected.
Additionally, you will see a pie chart that shows the breakdown in percentage between the principal repayment and the interest amount, which allows you to determine your total interest outflow over the loan duration.
What are the benefits of using an EMI calculator?
Before you avail of a loan, whether secured or unsecured, having an idea of the approximate monthly installment is beneficial.
It will not only help you determine if you can afford the loan or not but also allow you to plan your monthly finances to avoid a liquidity crunch. Here are four benefits of using an online loan EMI calculator:
- With an almost accurate EMI amount, you can plan your finances better and ensure the debt-to-income ratio is below 50% to avoid any stress.
- You do not have to do the manual calculation to determine the EMI, which reduces your time and effort.
- The possibility of any errors is completely eliminated as the entire calculation is automated.
- The calculation is specific for every type of loan, which means the home loan EMI breakdown differs from that of a car loan or a personal loan.
Frequently asked questions (FAQs)
What types of loans can you use the EMI calculator for?
You can use these online EMI calculators for all types of credit facilities, which include personal, automobile, and home loans.
What is comprised in the EMI?
Some portion of the EMI is used towards the principal repayment and the balance towards the interest.
Often, the interest component is higher during the initial period and reduces as you continue making the payments.
What happens if the interest rate increases or decreases during the loan duration?
If your loan is based on a floating interest rate and it decreases during the tenure, a higher portion of the EMI is used towards principal repayment, thereby reducing the loan tenure.
In comparison, if the interest rate increases during the loan duration, a higher component is used towards interest, thus marginally impacting its tenure.
How to use an EMI calculator?
To use a calculator, you need to input the loan amount in Rupees, the rate of interest in percentage, and the loan duration in years or months, or both.
Using this data, the calculator instantly gives you the total interest and the EMI amount.
Is the installment amount calculated using the EMI calculator the same as that determined by the lender?
When the lender approves your loan application, the exact EMI may vary slightly from the one calculated using an online calculator. The difference may arise due to the actual rate of interest charged by the lender and the processing fees levied.
Can the EMI amount change over the loan tenure?
Lenders offer a floating rate of interest for home and business loans and any change in the interest rate can impact your EMI.
Sometimes, the lenders may maintain the same installment amount while adjusting the loan duration. The EMI can also change if you make a partial prepayment on the outstanding loan amount.
When do you have to pay the EMI after availing of a loan?
The lender will provide an EMI schedule at the time of disbursement. The EMI is due on a particular date of the month, which is pre-determined when you receive the loan approval.
What happens if you do not pay the EMI on time?
If you miss an EMI payment on the due date, the lender may levy a late payment fee. Additionally, it is reflected on your credit history and can negatively impact your credit score.
Is it good to pre-close the loan before the end of its duration?
Lenders may charge a prepayment penalty if you repay the entire amount before its due date. Pre-closure may also negatively impact your credit score.
However, it is recommended you make partial prepayments whenever you have some extra cash to reduce the total interest outflow.
What factors affect the EMI amount?
Before you avail of a loan, having an idea of the approximate EMI can help you understand the approximate monthly outflow and allow you to plan your finances to avoid any liquidity crunch. The following factors impact the EMI amount.
- Loan amount, which is one of the most important factors, and choosing the amount wisely, is advisable.
- Interest rate also determines the EMI and the higher the rate, the greater will be the outflow. Therefore, comparing different products offered by various lenders to find the most competitive rate is recommended.
- Loan duration, any increase or decrease in the tenure impacts the EMI. The longer the duration the higher will be your interest and total outflow and vice versa.
Are home, car, and personal loan calculators the same?
Most online calculators use the loan amount, rate of interest, and duration to calculate the EMI. However, some calculators may restrict the total loan amount depending on the type of loan you are applying for.
This is a companion discussion topic for the original entry at https://jupiter.money/resources/equated-monthly-installments-emi-calculator/