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  • Why you should calculate your personal loan EMI before applying for the loan

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  • A personal loan is a type of unsecured loan that you can take to meet any planned or unplanned financial obligations. If the loan application is sanctioned, the borrower will have to make repayments via Equated Monthly Installements or EMIs during the course of the loan tenure. The loan provider charges an interest that usually ranges between 10% p.a. and 24% p.a. on the borrowed amount. The repayment tenure usually ranges between 12 months and 60 months.

    In order to successfully apply for a loan, the prospective applicant should meet the eligibility criteria set by the loan provider and should have a good credit score. To get a personal loan at a low interest rate, it is recommended that you maintain a credit score of at least 750. Further, prospective personal loan applicants should also make it a point to check their eligibility, compare interest rates quoted by different lenders, and use the EMI calculator tool to check the estimated EMI that will have to be paid on a periodic basis.

    How to Calculate EMIs

    You can calculate the monthly EMI payable with the formula mentioned below:

    EMI = P x R x (1+R)^N / [(1+R)^N – 1]

    In the formula mentioned above, P is the principal, R is the rate of interest, and N is the loan tenure in years.

    You can also calculate the EMI by using the EMI calculator tool, which is available on the websites of banks/financial institutions and on third-party financial services websites. To use the EMI calculator tool, you will need to key in certain details such as the loan amount, interest rate, and loan tenure. If you are using a third-party website, you can also filter the loan providers. Once you enter these details, the monthly EMI will be displayed on the website.

    Reasons Why You Should Use an EMI Calculator

    A few reasons why you should calculate the EMIs for personal loans offered by different lenders are as follows:

    • To Plan Your Finances: Calculating the EMI will help you know exactly how much you will have to pay to the loan provider on a monthly basis once your loan amount is disbursed. This will, in turn, help you plan your finances. Based on how much you will have to pay as the EMI, you can put aside money for your savings, investments, and expenses.
    • Helps You Compare: Loan providers take the loan amount, the tenure of the loan repayment period, and the personal loan interest rate into account to calculate the monthly EMI payable. Thus, by calculating EMIs quoted by different lenders, you will be able to compare the monthly cost of the loan. In addition to comparing the EMIs, you should also check the processing fee, preclosure charges, customer service channels, online services offered, etc., before applying to a particular lender for a personal loan.
    • Helps You Re-Calculate EMIs for Personal Loans with Floating Interest Rates: If you apply for a personal loan with a fixed interest rate, the EMI payable will remain constant throughout the repayment tenure. In this case, you will only have to calculate the EMI once – before applying for the loan. However, if you apply for a personal loan with a floating interest rate, the interest rate charged may fluctuate if the MCLR changes. In such cases, you can use the EMI calculator to view the revised EMI charges.
    • Easy to Use: An online EMI calculator tool is easy to use. While you can always calculate the EMI payable manually, there is a chance that there may be mistakes in the calculated sum due to human error. Thus, it is recommended that you use an online EMI calculator tool. To use the EMI calculator tool, most websites will only require you to key in the loan amount, interest rate charged, and the tenure of the loan. Once you key in the required details, the payable amount will be displayed to you.
    • Time Convenient: Using an online EMI calculator tool is time convenient. The EMI payable will be displayed on the website as soon as you input the required details, without any delay.

      If you find that the EMI is too high, you can adjust the loan tenure or the loan amount. You can also try negotiating with the loan provider to offer you a better interest rate, which will reduce the EMI. You can calculate the EMI in a hassle-free manner online through the bank or financial institution’s official website or through a trusted third-party financial services website. The benefit of using a third-party financial services website is that the EMIs quoted by various banks will be displayed on the same page, without you having to enter details separately for each lender. This makes the comparison process easier and helps you save time, as well.

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