A personal loan is unsecured in nature, meaning you do not need to offer any collateral or security. Owing to its unsecured nature, personal loan interest rate is usually on the higher end than secured loan options. The intention or purpose of personal loan is to finance instant financial emergencies. It can either be for marriage, business capital, education, or foreign trips. However, before you click on the personal loan apply button on the lender’s website, you must know the basics. Basics include having knowledge about how the personal loan EMI is calculated. Knowing this can allow you to compute the EMI on your own either manually or through an online personal loan EMI calculator to derive the result as per your repayment capacity. Having a rough estimate of your EMI allows you to understand your personal loan eligibility.
How is a personal loan EMI calculated?
Personal loan EMI computation majorly depends upon 3 variables – loan repayment tenure, loan amount and personal loan interest rate. Remember that personal loan interest rate is one of the aspects that is decided by the lender.
Personal loan EMI calculation through the PMT formula
It is a roundabout and longer approach to compute personal loan EMI. Here, you must use the PMT formula in MS Excel to compute the EMI, wherein –
- PMT is the EMI
- Rate is interest rate/12
- NPER or number of periods is overall number of loan payments
- PV is principal or loan amount
PMT formula = (Rate, NPER, PV)
You can try out this formula for multiple combinations to select the result with the lowest personal loan EMI. However, note that it is a tedious approach that may be prone to human error.
Online EMI calculator
Using an online personal loan EMI calculator is a far better and affordable approach to compute personal loan EMI. Here, you are required to fill up 3 basic variables, namely loan amount you require, repayment tenure as per your cash flow and interest rate as per your requirement. Interest rate is determined by the lender while the other 2 aspects – the repayment tenure and loan amount – are the ones you may play around with to compute a suitable EMI.
Here’s how a personal loan EMI calculator can help you while availing a personal loan –
- Estimates monthly loan cost: With the assistance of an EMI calculator, you may get a comprehensive idea regarding the EMI component due every month. This assists you to know the sum you must keep aside every month to pay off your loan proceeds by the due date.
- Permits you to adjust your loan repayment or loan amount: A personal loan EMI calculator gives you a rough idea about the balance due throughout the repayment tenure. An EMI is closely linked to the borrowed amount and repayment tenure. Thus, if the EMI is high and you think you may face trouble repaying it, you can always adjust it by increasing the tenure or lowering the loan amount requirement on the EMI calculator.
Before you hit on the personal loan apply button, ensure to compute your EMI before. This assists you to better plan out your finances, which thereby prevents you from defaulting on your loan in the future.