An EMI calculator is a tool which you can find online, which enables you to calculate your monthly interest on a loan. Hence, it makes the process of paying EMIs smoother as it presents to you the amount that you have to pay every month after taking into account the tenure of your loan, the rate of interest on your loan and the principal amount. Thus, the EMI calculator is a helpful tool for those who want to keep track of the amount that they have to pay as interest every month and who want to keep a check on their finance.
How is EMI Calculated?
There is a mathematical formula which is used to calculate the EMI for every loan. The formula is [P x R x (1+R) ^N]/[(1+R) ^N-1]
Here, the different components are:
- ‘P’ stands for the principal amount or your total loan amount
- ‘N’ stands for the tenor of your loan or the total number of monthly installments that you have to pay
- ‘R’ stands for the interest rate per month. If the interest rate is stated as per annum, then it is divided by 12. Thus, if the interest rate is 10% per annum, it is calculated as (10/12) x 100.
How do you calculate your Home Loan, Personal Loan, and Car Loan EMI?
It is easy to see that calculating your home loan, personal loan and a car loan is quite easy. All you have to do is enter your loan amount, the tenure of your loan and your rate of interest per month in the required fields. An online EMI calculator will then use the formula mentioned above and present you with the amount that you must pay every month.
Also, Check – Home Loan EMI Calculator
Generally, the tenor for a personal loan and a car loan is shorter than home loans. While personal loans can be unsecured, that is, banks may not ask for collateral in exchange for giving you a loan, home loans and car loans are generally secured loans. Personal loans are more flexible and can be used to meet any personal needs, while home loans and car loans are specific to buying a car or a home. The security, in this case, is the property or the car that you purchase using that loan.
What are the advantages of calculating your EMI in advance?
The affordability of any loan depends on the EMI or the monthly installments that you have to pay. Hence, before you apply for a loan, it is essential to know what your EMI will be to know whether or not you will be able to afford the loan. Here are a few advantages of knowing your EMI amount in advance:
- Decide on the loan amount, which is right for you: Every bank has a different tenor and a different interest rate. Sometimes banks may have an inline EMI calculator on their website, or you may use any other online calculator to calculate the EMI that you would have to pay for different loan amounts. By comparing the different amounts based on different principals, you can decide which loan amount will be the best choice for you. When you know the EMI value that you have to pay every month, you can assess your monthly expenditures and see whether or not you will be able to pay the set amount every month comfortably.
- Helps you plan out your payments: Once you have calculated the EMI value, you can then look at your monthly expenses and see whether or not you will be able to pay it every month comfortably. You can plan out your monthly expenditures and look at the areas where you can cut back o to ensure that your payments are made on time. Hence, calculating your EMI value in advance helps you plan out your finances more efficiently so that three is not much of a strain to pay off your loan.
- You can plan your prepayments: When you pay your monthly installments before the due date, it can not only help you pay off your loan sooner but can also help you save some money. Hence, when you are aware of your EMI value in advance, you can even plan to pay it ahead of time. This is only possible when you are aware of the amount that you have to pay every month and have planned your finances accordingly. You can reduce the burden by paying the EMI early, and ultimately even save some money while doing so. Knowing the EMI in advance helps in planning prepayments which is a boon.
- Decide on the bank: Every bank has a different tenor and a different interest rate for the same principal amount. Before you decide on a particular bank, you will need to know the MEI value that you have to pay based on the tenor and interest rate offered by different banks to ensure that you are making the right decision based on your finances. Hence, an online EMI calculator not only helps you decide on the amount of money that you should borrow but the bank that you should borrow it form to ensure that you can comfortably pay off your loan.
Taking out a loan is a significant financial decision, and it should not be made lightly. You need to assess every factor which affects your loan carefully before you decide whether taking out a loan is the right decision for you or not. An online EMI calculator is a major boon in such a situation as it helps you get an accurate idea of the amount that you have to pay and helps you compare the EMI value between different principal amounts as well as various interests’ rates and tenor to arrive at a decision which is right for you.