Personal loan: How can you reduce the tenure using an EMI calculator? | Mint
Source: Live Mint
If you are planning to raise a personal loan, you must have already decided the amount that you need. This would naturally be based on your requirement. Meanwhile, the rate of interest at which the loan is disbursed is determined by the bank based on your credit score, among other factors.
What you – as a borrower– can determine is the loan tenure within which you must repay it. For this, it is recommended to use a personal loan EMI calculator. In a calculator, one can enter loan amount and rate of interest to ascertain the loan tenure.
Let us understand this with the aid of an illustration
Personal loan of ₹10 lakh
Suppose you want to borrow ₹10 lakh, and the loan is available at 10 percent interest. You want to repay the loan as soon as possible. The maximum tenure, typically, is of five years i.e., 60 months. To repay the loan in five years, the loan EMI would turn out to be ₹21,247.
You have decided to repay the loan as soon as possible but it is subject to a maximum EMI of around ₹35,500.
Therefore, you reduce the tenure from 60 months to 48 months in the EMI calculator. You will realise that the EMI jumps to ₹25,362 for 4 years.
Since you can afford to pay a higher EMI, you further reduce the tenure to 3 years i.e., 36 months. In this case, the EMI will further increase to ₹32,267.
At this stage, you would want to reduce the tenure further since you can afford to pay a slightly higher EMI.
But when you make it 24 months (i.e., two years), the calculator will show that the EMI has risen to 46,144, which is way higher than what you can afford.
(Source: EMI calculators)
After tweaking around the tenure further, you will eventually realise – as the table above shows – that the optimum tenure is 32 months. This is the tenure at which the EMI is ₹35,730 – close to what had been decided beforehand.
To sum up, if you know your monthly EMI budget, it is recommended to use the personal loan EMI calculator to find the optimum tenure within which you must repay the loan.
