Personal Loan: Why should you use an EMI calculator before raising a loan? | Mint

If you are planning to raise a personal loan, it is vital to ensure your finances are in order. For that, you are supposed to keep your monthly debt obligation within your budget. A slightly lower interest rate can bring down your EMI considerably. Alternatively, if you borrow a lower amount, your loan liability and monthly instalment will decline proportionately.

There are essentially three variables that affect the personal loan EMI. These variables are loan amount, tenure of loan and the rate of interest. Using a personal loan EMI calculator, you can compute the monthly instalment after entering these.

Let us understand how.

Suppose you want to raise ₹10 lakh personal loan for three years at 10 per cent interest. After entering these figures into the EMI calculator, you can ascertain the EMI, which comes to ₹32,267. Now, if your maximum monthly commitment is, say, ₹25,000, what will you do?

The only option that you have is to extend the tenure of the loan.

Using the Personal Loan EMI Calculator, you will find out that if you extend the loan tenure from 36 to 48 months, your monthly EMI will reduce to ₹25,362 from ₹32,267 (see the table below). 

(Based on the calculations on the EMI Calculator)

Let us take another example: suppose you want to raise ₹10 lakh, which is offered at 11.25 per cent per annum from lender ‘A’. You want to repay within 3 years. Now, after entering these figures into the EMI calculator, you will find that the monthly instalment is ₹32,857. 

Now, lender ‘B’ offers you a better deal of 10.75 per cent interest. Using the calculator, you will find that the monthly instalment will decline to ₹32,620.

(Based on the calculations on the EMI Calculator)

The monthly savings will turn out to be ₹32,857 (-) 32,620 = 237. Over a period of three years, this will accumulate to ₹8,532 (237 X 36).

Now, you may want to change the lender from ‘A’ to ‘B’ because of your calculations on the Personal Loan EMI calculator. What if the additional processing charges are ₹3,000? 

The net savings will fall proportionately then. Either way, we can make an objective decision based on the calculations arrived at via the Personal Loan EMI calculator.

To sum up, we can say that a personal loan EMI calculator helps us calculate monthly instalment based on three variables which are loan amount, loan tenure and the rate of interest. 

It helps the loan applicants ascertain the impact on their loan EMI if the loan tenure and/or rate of interest is altered.