Personal loans: How can you use EMI calculator to procure a good deal? | Mint
Source: Live Mint
Personal loan: If you are planning to raise a personal loan, it is vital to note that it usually has a fixed interest rate, which means the monthly instalment at which you start paying at the start of the loan will continue till the end of the loan.
However, there are three variables on which your loan EMI is dependent. These three variables are on which your EMI depends are following:
A. Rate of interest: This is the interest which the bank is charging on loan. Higher the rate of interest, larger the monthly instalment.
B. Tenure of loan: This is the total period for which the loan is scheduled to continue. When the borrower is supposed to repay the loan over a period of five years, the loan’s tenure would be five years. Longer the loan tenure, bigger the loan EMI.
C. Amount of loan: This is the total amount of loan. Larger the loan amount, bigger the EMI and in contrast, the smaller the loan amount, the lower the monthly instalment.
Suppose you plan to raise a ₹3 lakh personal loan on which the bank is charging 11 percent annual interest and the pay back period is 24 months. The monthly instalment turns out to be ₹13,982.
Now, suppose you want this instalment to fall below ₹10,000, what will you do? There are only two options, pay a lower rate of interest or increase the loan repayment period.
And now since the bank would not agree to settle for a lower interest rate, what will you do? You will increase the loan repayment period.
Let us try to increase the loan repayment period to 30 months. Now, the EMI becomes ₹11,483.
Since the EMI is still higher than ₹10,000, we will now increase loan duration to 36 months. The monthly instalment is now ₹9,821.
This is how we have come to the conclusion that by extending loan repayment period from 24 to 36 months, the monthly instalment can reduce from ₹11,483 to ₹9,821. And all these calculations could be made possible with the help of a personal loan EMI calculator.
(Note: Raising a loan comes with its own risks. So, due caution is advised)
