Financial management is one of the most crucial aspects of anyone's life, especially if they have multiple expenses, such as house rents, utility bills, children's education, etc.
In case of any financial emergency, one can opt for any credit facility per their requirements to obtain the additional funds. In addition, a personal loan can help during unplanned financial setbacks.
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However, while borrowing, borrowers must plan their monthly instalments using a personal loan EMI calculator. Read on to know more about this online tool.
Know How a Personal Loan EMI Calculator Can help Optimise Loan Management
A personal loan EMI calculator is an online tool that can be used as often as a borrower needs. Further, it is a free-to-use tool and candidates can alter the variables multiple times and check the results until they get their desired EMI. There are several beneficial aspects of this online EMI calculator. Some of which are as follows:
- Knowing the dues
The customised online tool helps borrowers know their monthly obligations before applying for this credit instrument. By evaluating the monthly instalments, borrowers will not miss any payments and help maintain a good credit score. Missing out even a single payment can negatively affect a person’s credit score and make him/her a high-risk borrower.
- Negotiating with the lender
Once individuals know their repayment capabilities, they can choose a lending institution per their needs. Further, borrowers can negotiate the loan's interest rates or repayment tenure per their credit scores. This will allow them to plan their finances and effectively manage them.
- Deciding the right repayment tenure
The repayment tenure plays a crucial role in deciding the monthly instalments and the total payable interest. With the help of this online tool, one can evaluate their monthly pay-outs as per the repayment tenure option. Based on the variables provided by the borrower, he/she can decide the feasible repayment tenure for the personal loan. One should keep in mind to opt for shorter repayment tenure or ensure a low interest rate against their borrowed sum.
- Comparing lenders
The variables required for calculating the EMIs allow willing borrowers to choose the right lending institution. One should make sure to go for a lender that offers the best term per his/her financial requirement and capability. Further, while deciding on the lending partner, one should also take in consideration the additional costs associated with the personal loan. These additional costs including the documentation charges, processing fees, service charges, pre-closure fees, etc.
- Saves time and shows accurate results
The EMI calculator helps borrowers avoid the hassle of manual calculation of EMIs. Further, this online tool generates accurate results within seconds.
How to Use a Personal Loan EMI Calculator
Willing borrowers can follow these simple steps to use a personal EMI calculator to evaluate their monthly instalments before applying for this credit facility:
Step 1: Visit the official website of the preferred lending institution and locate the option of ‘Personal Loan EMI calculator’.
Step 2: Use the slider in the tool to adjust the principal loan amount as per the requirement.
Step 3: Then, provide the rate of interest as charged by the lender and choose the loan repayment tenure.
Following this, the calculator will generate the monthly instalments along with the total payable interest at the end of the repayment tenure.
This online tool works on the following mathematical formula:
EMI= [P x R x (1+R) ^N]/[(1+R) ^N-1]
In this formula, EMI is the Equated Monthly Instalment, P denotes the principal loan amount, R stands for the interest rate as charged by the lender, and N is the total repayment tenure in months.
One of the most beneficial aspects of an EMI calculator is that it helps to avoid the hassles of manual calculation and also the odds of erroneous results. One can change the variables as many times as they want until they find their desired result.
Factors that Affect the Personal Loan EMI
The monthly instalments of personal loans depend on several factors. Here are some of the parameters upon which the monthly instalments of a personal loan depend:
- Interest rate on personal loan
This is the rate of interest at which the financial institution disburses the loan amount. A higher rate of interest increases the monthly instalments. Different lenders offer personal loans at different interest rates. Hence, one should compare and then choose a lender that charges the lowest interest rate in order to reduce their monthly instalments.
- Loan amount
This is the borrowing amount that the lender sanctions for a loan—higher the borrowing amount, the more the monthly instalment for the borrower.
- Loan repayment tenure
Extended repayment tenure will lower the monthly instalments to be paid by the borrower. However, a longer tenure increases the interest rate and hence the borrowed sum's total payable interest. Therefore, willing borrowers should make sure to choose the repayment tenure wisely in order to avoid financial burden.
What are the Ways to Reduce the Monthly Instalments
The EMIs for a personal loan are recurring financial liabilities that impact the monthly expenses of borrowers and can come in the way of their financial goals. However, borrowers can reduce their EMIs in the following ways:
- Improving the eligibility parameters and negotiating with the lending institution for lower interest rates
- Maintaining a decent credit history with no credit defaults
- Maintaining a credit score of 750 or more
- Selecting a longer loan repayment tenure and lowering the monthly equated instalments
To sum it up, every prospective borrower should use a personal loan calculator to plan their prepayments per the results generated by the tool. Further, one can check the reductions in their outstanding loan amount, EMIs, repayment tenure, etc., and choose to prepay per their financial capabilities. However, customers should only go for the prepayment option if they have surplus savings in their bank accounts.
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