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The most common thing everyone asks when they avail a loan is “What are EMIs? How do I know how much...
Most of us do not know how loan EMIs are calculated. Yet, we make payments as per the repayment schedule...
EMIs can be broadly classified as EMI during loan disbursal or EMI after you get the loan...
Manoj Kumar, 29, a Bangalore-based MNC employee, fulfilled his dream of owning a new a car in 2010...
The most common thing everyone asks when they avail a loan is “What are EMIs? How do I know how much I have to repay every month to clear my loan?”
Understanding EMIs and amortization tables is probably the most confusing part of the entire process of availing any kind of loan. The EMI, or Equated Monthly Instalment, is important because it signifies monthly outflows towards repayment of the loan.In order to calculate EMI for your loan, you should first understand its components:
The formula consists of using the loan amount, interest rate and tenure of the loan (in months): to find out your EMI (Equated Monthly Instalments)M = No of months to pay the loan
For example: You avail a home loan of Rs.5 lakhs and the bank disburses the loan in instalments of Rs.1 lakh each at each stage of completion of the house being funded. Once the first instalment is disbursed i.e.Rs.1 lakh, the borrower begins making interest payments. Pre-EMIs do not reduce the principal component of the loan amount..Advantages of Pre-EMIs
Here, EMIs i.e. interest + principal are repaid only once the entire loan amount is disbursed.Advantages of Full EMIs
If you plan to sell the house, or are expecting large income inflows orare anticipating higher returns from the property funded by the loan, it is better to opt for Pre-EMIs. However, if you are not sure and do not want to take any undue risks, Full EMIs are a better option.
Manoj Kumar, 29, a Bangalore-based MNC employee, fulfilled his dream of owning a new a car in 2010. He bought a car for about Rs 5.95 lakh. He managed to do this by availing a car loan. The down payment he was required to pay was Rs 1.5 lakh and the remaining amount was funded by his auto financier. The car loan interest rate was 12% p.a. and the loan tenure was set at four years. As per the terms of the agreement, he currently pays a monthly EMI of Rs. 11,700. Manoj goes by the payment schedule as set out by the bank. But, how does he verify the amounts payable as per the schedule? Is there any way he can reduce or increase the EMI based on his financial situation?
Calculating EMIs can be confusing and tedious. There are many borrowers who find it hard to understand EMI calculations and Manoj is no exception. Most borrowers are unsure whether they are paying the right amount as EMIs; in many cases, the lenders themselves may have erred in their calculations.
The irony of it all it that EMIs are not that hard to understand. Using MS Excel, a very popular tool used the world over, anyone can easily calculate the amounts due as EMIs.MICROSOFT EXCEL FOR EMI CALCULATION
An Excel spreadsheet is a software specifically designed for mathematical calculations and performs calculations using a number of preset formulae. This makes it one of the most convenient tools to calculate and understand EMIs or repayment schedules.STEPS TO CALCULATE LOAN EMIs USING EXCEL
To calculate loan EMIs using Excel, you have to use the function ‘PMT’ . You will need to know the rate of interest (rate), the tenure of your loan (nper) and, the value of the loan or present value (pv). Apply this to the formula: =PMT(rate,nper,pv).Example:
If you were to choose a different frequency, say a quarterly payment schedule as opposed to monthly payments, all you would have to do is factor this into the formula to get the desired results.Example:
Its really as simple as plugging in data and receiving results, completely eliminating confusion and anomalies. This not only helps you as a borrower in choosing the right loan plan but also helps you adjust your EMIs according to your financial situation.
When used prudently, your 86×54 mm magic box (credit card) can do wonders for you. Fully loaded with rewards, credit card as a financial product, has turned out as personal favorite for many. You can draw maximum benefit from rewards program, if you use your credit card the right way. With the rising competition in credit card industry, the card issuers are providing numerous offers to their customers to grab bigger share of the pie. The Credit card reward program offers cash back, travel offers, reward points, credit card deals and many more. All these offers are worth it when you are well-versed with do’s and don’ts for your credit cards. Following are some of the ways that assist you to get maximum out of your credit card:
Following things you should do:
Keep track of your transactions: You should always monitor your transactions through mobile/ e-mail alerts. Whenever you get a mobile alert, make sure you read the complete message from credit card provider. Along with this, make it a practice to read and verify your monthly credit card statement. If you find difficult to remember all your purchases, then it is better to save all the receipts and compare it with your credit card statement each month. Whenever you notice any unauthorized transaction, make sure you call up customer care and inform them about the transaction immediately.
Check your credit profile once in a year: Your credit card providers always share details of your repayment with several credit agencies like CIBIL TransUnion, Equifax etc. who in turn rate you on a credit score ranging from 300-900. It is a good practice to buy your credit score and complete report, at least once in a year to keep track of your credit history. Your credit score tells the lender how likely you are to pay back loan or credit card dues based on your past repayment behaviour. The higher your score, the more the chance of your loan application getting approved! If you know your credit score, you can always work towards improving it over a period of time. And if you find any error in your report, you can always dispute it with the agency and take it up with concerned lender to rectify it.
Remember your credit card number: Using only one credit card provides maximum benefit in terms of reward points and ease in handling. It is always advisable to remember your credit card number so that even if you miss your credit card somewhere, you can immediately report it to the customer care. Remembering your credit card number also simplifies the process during online shopping as you need not always take out your card and copy its number each time you shop.
Understand your credit card charges: Before you sign up for a credit card, it is very important to know all the charges that are associated with that card. Usually, the credit card companies charge for: Joining & Annual Fees, Late payment (late fee and interest), Cash Advance fee, Over Credit Limit charge, Cheque/ECS Bounce Charge, Petrol Transaction Charge, Statement Request (beyond 3 months), Foreign Currency Transaction etc. It is advisable to read and understand the schedule of charges along with the “Terms and Conditions” of the credit card beforehand to avoid any disconnect later.
Keep yourself updated on misuse of credit card: While using a credit card, you should always be informed on the risks and frauds that can happen and the ways to prevent them. The best way is to read all the e-mailers/ letters sent by your credit card providers as they always keep their customers informed on any new precautionary measures and ways to protect your credit card. Also, read more on my article “10 smart ways to avoid credit card frauds” to keep yourself informed about various credit card frauds and ways to can avoid it.
Following things you should not do:
Don’t miss your credit card payment: There is always a cost associated with the benefits that you enjoy. The credit card companies, who lend you money for an interest free period of around 45 days and also provide you rewards for your purchases, ought to charge a fee ranging from 22-45% p.a if you fail to make the timely payment. If you want to enjoy these free benefits, then you should promptly repay your credit card dues each month i.e. by inculcating self-discipline, you can avoid these charges on your card.
Never pay only minimum: Paying only the minimum due amount might not classify you as a defaulter but may cost you an interest on the funds borrowed by you. You should always try to repay your complete credit card bill each month to avoid high charges. However, there may be months when due to some unexpected expenses, you might not be able to repay the credit card balance in full. Then only during those months, you should make at least the minimum payment and don’t increase your credit card balance by more purchases. If you know you don’t have the money to pay your credit card balance, then avoid using it until you can afford to pay new charges again.
Do not fully utilize your credit limit: Your credit score might get affected if you fully exhaust your credit limit and if you exceed your sanctioned credit card limit, then you may have to pay charges to your credit card provider. It is always advisable to use up to 50% of the credit limit sanctioned to avoid any negative impact on your credit limit.
Never share your credit card information: You should never share your credit card details, especially the password and PIN, with anyone (not even the customer care executive). Always ensure to enter or key-in your IPIN over the conversation with customer care and do not spell it out as this can lead to sharing of sensitive information over the phone with a third party.
Never trust all websites: While you use your credit card online , always ensure to check the valid source and authenticate the genuinely of the website where you use your credit card. Always shop from the reputed websites and never trust the public computer or Wi-Fi as this might hack your credit card details.
By taking some precautionary measures, you can safely use and enjoy the benefits of a credit card. You just need to be a little careful while you use a credit card and by doing this, you can become one of the delighted credit card customers.