Personal loan: How to interpret the results of EMI calculator for smart decisions? | Mint

If you are planning to take a personal loan and still not sure about the optimum tenure and the EMI that you should opt for – it is recommended to fiddle with the personal loan EMI calculator.

It is an easy-to-use tool which shows the exact amount that you need to shell out every month in order to repay the loan on time. However, it is vital to note that you need three determinants to calculate the exact EMI. These determinants are the amount of loan, rate of interest and the loan tenure.

When you enter all three factors, you can find out the exact loan EMI. Let us understand this with the help of an illustration.

Using EMI calculator

Suppose you plan to take a ₹10 lakh loan which is being offered at 11 percent interest. Now, the loan EMI you plan to pay will be subject to the tenure you choose. For instance, when the tenure is 24 months, your EMI will turn out to be ₹46,607.

And if you can’t afford to pay this EMI, you may decide to stagger the loan repayment over a longer tenure. Over a period of 36 months, the EMI will be ₹32,738.

And if you decide to repay the loan in 48 months, the EMI will turn out to be ₹25,845. And when you decide to repay the loan in 60 months, the EMI will stand at ₹21,742 (as the above image shows).

Amount and interest

Another point worth noting is that the EMI calculator will reflect a different EMI figure based on the loan amount and the rate of interest.

For instance, if you want to pay an EMI lower than ₹20,000 in the above case and you can’t go beyond 5 years of loan repayment period, the only option you are left with is to reduce the loan amount.

Now, as you reduce the loan amount to ₹9.5 lakh, the EMI figure would drop further to ₹20,655. And upon dropping it further to ₹9.25 lakh, it will fall to ₹20,111.

Alternatively, you could scout for a loan at a lower rate of interest to cut down on EMI amount. When the interest rate is reduced to 10.75 percent for a ₹10 lakh loan, the EMI for five years would further decline to ₹19,996.

To sum up, a personal loan applicant can use an EMI calculator to determine the optimum loan tenure, and to opt for the right lender which offers the loan at an affordable rate of interest.