When we take a loan, we are expected to repay the loan amount within a particular stipulated loan tenure.
Now, loan repayment calculation is not a simple process where the exact sum borrowed is repaid either as a lump sum or over an extended period of time.
Instead, when you take a loan, you repay both the principal loan amount and a specific interest amount that accumulates on the principal amount over some time.
The total amount repaid is the principal amount and the total interest. Now, the most usual modality of repayment is through regular monthly installments, where a certain amount is repaid every month until the whole amount is paid off.
Read on to learn more about what EMI is, how it is calculated, and how an online EMI calculator can help render quick and easy answers to your loan repayment queries.
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How is Loan Repayment Made?
You can make successful loan repayment through either of the two methods stated below.
- Equated monthly installments (EMIs)
With equated monthly installments, your total repayment amount is split equally across your whole tenure. It ensures that the amount paid every month remains the same throughout.
With this method, the interest is calculated on the original principal amount and not on the outstanding principal amount for each month. Suppose your EMI comes down to INR 2500 for a tenure of 5 years, which means you pay the said sum every month for 5 years.
Now, a particular portion of the EMI goes into the repayment of the principal amount, while the remaining portion goes into the repayment of the interest amount. As you near the completion of your tenure, the total outstanding amount will successively decrease till the balance is completely cleared off.
However, your EMI amount will remain constant throughout to be paid every month.
- Non-equated monthly installments
With non-equated monthly installments, the amount repaid each month does not remain the same but decreases with each successive month.
This is because the interest for each subsequent month is calculated not on the original principal amount. Instead, it is correlated to the outstanding amount for each month.
Since the outstanding principal amount decreases each month, the interest calculated on it already reduces, leading to a decrease in the EMI amounts. However, the principal amount repaid remains the same.
What are the factors on which EMI depends?
The factors on which EMI depends are:
- Loan amount
The EMI shares a directly proportional relationship with the loan amount. In other words, the more considerable the loan amount, the more will be the EMI charged, as the repayment amount would also naturally increase.
- Rate of interest
The EMI payable is also directly proportional to the interest rate. The more the interest rate, the more interest will be owed, and therefore more the EMI amount.
While taking a loan, you should strive to get the lowest interest rate possible. If you have a good credit score, the lender will likely be prepared to hand out money even with a low-interest rate. However, with a low credit score, you are less likely to get a low-interest rate.
Similarly, unsecured loans charge more interest rates than secured loans. It is because you are taking a loan, and your credibility to repay is not fortified by staking an asset of mortgaging, which is the norm for a secured loan.
- Loan Tenure
The EMI payable is inversely proportional to the repayment tenure. In other words, the shorter the tenure, the greater the EMI amount, and the longer the tenure, the smaller the EMI payable will be.
However, it is advisable not to stretch out the tenure unnecessarily. It might seem a little counterintuitive to you, but it has its own logic. Even though you might have to repay smaller sums of money each month, effectively, you will end up paying more interest than what you would have paid on a shorter tenure.
What is an online loan EMI calculator?
Calculating your EMI manually can be a monumental task. As already mentioned, the calculation for EMI is not a straightforward one.
The formula for EMI calculation is as follows:
- P x R x (1+R)^N / [(1+R)^N-1],
- Where P is the principal amount
- R stands for the interest rate
- N represents the tenure in months
Your EMI is calculated after considering the three factors: loan amount, interest rate, and repayment tenure. Each month, while your EMI remains the same, a specific section of it goes into clearing your principal amount while the rest goes into clearing the interest. This breakup is also complicated and easier done with an EMI calculator.
An EMI calculator is a digital device or tool present on the homepage or a designated page of most banks, NBFC, or financial/loaning facilities’ websites. It can even be found on mobile-based financial or loaning applications.
An EMI calculator calculates the amount of EMI you have to pay each month once you enter the details of your loan term. After entering the loan amount, tenure, and interest rate, an EMI calculator instantly flashes the EMI payable, often along with the breakup of interest and principal.
Calculating the value manually can be a gigantic task. An EMI calculator, on the other hand, displays the results instantly. Knowing your EMI in advance to take a loan can help you plan your finances and expenditures and decide whether the loan plan is suited to your economic condition.
What are the benefits of an online EMI calculator?
An online EMI calculator is a nifty tool that needs an internet connection and seamlessly helps you do the following.
- Manage your finances
Knowing your EMI in advance will help you figure out the exact amount you must pay each month. This can help you manage your finances and help you decide whether you are capable of comfortably paying this definite sum every month without incurring further financial burden.
- Experiment with various loan plans
With an EMI calculator, you can compare various loan terms to see which one is better suited to your needs.
You can alter the loan amount, tenure, and interest rates and match one plan against the other by modifying the filters and fields in real-time to make an informed choice.
The online EMI calculator allows you to experiment with various loan plans in a highly efficient and time-saving manner.
- Ensures good credit score
Checking the EMI amount in advance to take a loan ensures that you make a well-thought decision so that you can comfortably pay off the amount each month. This reduces your chances of defaulting and provides a good credit score.
- Instant, accurate results
The calculation for EMI is a complex one, and performing it manually increases the chances of error. An online EMI calculator is easy, quick, and accurate, and delivers results instantly, thereby saving both time and energy on your part.
- Online and accessible
The best thing about the EMI calculator is that it is available online and for free. It means that you can calculate the EMI at any time of the day from anywhere without undergoing any unnecessary hassle. All you need to do is enter the loan amount, repayment period, and interest rate, and the results will be displayed instantly.
You don’t need to purchase it. However, a stable internet connection is a must-have.
Money View has an online loan EMI calculator that is highly accessible and user-friendly. There are three sliders containing loan amount, repayment tenure, and interest rate. You can enter the details by simply rolling the sliders to place them over the required data.
Once the factors have been adjusted, the EMI payable will flash on the screen. Alongside, you will find other vital data such as the interest amount, the principal+interest amount, as well as the break up of the interest and principal each month. This facility is very smooth and efficient and can make a massive difference in choosing the proper loan term.
Related Links: Use bike loan EMI calculator to calculate your monthly EMIs
Whenever you borrow a loan next time, be sure to make use of the online loan EMI calculator to help you plan out your loan-related finances in the most efficient and structured way possible.