EMI Calculator

EMI Calculator

With the growing competition in the financial services market, consumers now have a plethora of options for loans. While finding a trusted financier which offers competitive interest rates is a must before applying for a loan, consumers must be conscious of how to repay the debt. As most of the loans are repaid through EMIs or equated monthly instalments, knowing about the monthly outgo is important to avoid financial distress.

This is where EMI calculators play a crucial role. An EMI calculator is a simple tool which helps a consumer to get an estimate of monthly instalment. EMI calculators can easily tell you whether a loan at a particular interest rate offered by a financier is affordable or not.

What is an EMI Calculator?

An EMI calculator is a tool that helps in getting an estimate of the monthly instalment of a loan. You need to input details such as loan amount, loan term, and interest rate, and the calculator will immediately suggest the EMI estimate. Every bank or financial products provider has an EMI calculator on its website.

The EMI calculator works using a mathematical formula:

EMI = [P x R x (1 + R)^N] / [(1 + R)^N - 1]

In this formula:
P is the principal loan amount
R is the monthly interest rate (calculated by dividing the annual rate by 12)
N is the loan tenure in months

How to Use the EMI Calculator

Using an EMI calculator is very simple. Follow these steps to use an EMI calculator:

1. Open the EMI calculator.
2. Enter the loan amount.
3. Fill in the interest rate offered by the bank or financier.
4. Enter the tenure for which you want to take the loan.
5. Click on Submit and the EMI Calculator will display the estimated EMI amount.

Types of EMI Calculators

There are various types of online EMI calculators for different types of loans. Interest rates for home loans are usually lower than other loans such as personal and car loans. Loans are also offered with floating rate and fixed rate interests for different kinds of borrowings. Different types of EMI calculators include:

• Home Loan Calculator
• Car Loan EMI Calculator
• Personal Loan EMI Calculator
• Bike Loan EMI Calculator
• Credit Card EMI Calculator
• Education Loan EMI Calculator

Factors Affecting EMI Calculation

Certain elements such as loan tenure and interest rates affect the EMI of a loan. A borrower should consider these elements before applying for a loan:

• Loan Amount: The loan amount is the main factor which affects the EMI. EMIs will be lower for low loan amounts and higher for high amounts, considering the interest rate and loan tenure are kept fixed.
• Loan Tenure: Loan tenure also affects the EMI amount. At a fixed interest rate and loan amount, EMIs can be different for different tenures. Usually, EMIs are higher for shorter tenures and lower for longer durations. However, interest payable also increases with an increase in loan tenure.
• Interest Rate: EMIs will be high for high interest rates and lower for low interest rates offered by a bank or lender.
• Fixed or Floating Interest Rates: EMIs of loans taken at fixed interest rates remain the same throughout the tenure of a loan taken from a lender. However, if the loan is taken at floating interest rates, then the EMI will change as and when the lender changes the interest rate.

Benefits of Using an EMI Calculator

• EMI calculators help a borrower to know the EMI amount before applying for a loan.
• EMI calculators help in better financial planning about the loan amount, tenure, and interest rate.
• You can plan your repayment schedule better.
• An estimate of the EMI amount helps to avoid financial burden after availing the loan.

Understanding EMI and Its Components

EMI or equated monthly instalment is the amount that a borrower needs to pay back to a lender against a loan. EMI includes the principal and interest. Usually, the interest component is higher in initial EMIs and it comes down gradually towards the end of the tenure.

Common Mistakes to Avoid While Using EMI Calculators

• Don’t miss entering the accurate loan amount, interest rate, and tenure. Feeding any figure other than your loan details won’t provide you with the precise loan amount.
• Don’t ignore any additional or hidden charges while calculating the EMI.
• It’s a common mistake not to check various loan offers and interest rates. Consider the variations in principal amount, interest rates, and tenure to get the exact EMI. This will also help to get the best loan offer.
• Factor in any prepayment you are planning. This can significantly reduce your EMI amount and also may reduce interest rates in some cases.

Conclusion

EMI calculators are crucial in better financial planning as these help in finding the amount that a borrower can easily afford to pay back the loan over a period of time. This ensures better compliance by the borrower and helps the borrower to avoid loan defaults.