Personal Loans are collateral-free credit that lending institutions offer based on the applicant’s income, profession, credit history, employment, repayment capacity, etc. Borrowers can utilise Personal Loans from Hero Fincorp to meet various financial demands, such as paying medical bills, renovating a house, consolidating debt, planning a wedding, financing a vacation, or covering education expenses.
Typically, Personal Loans have fixed interest rates and set loan terms, making repayment easily manageable for the borrowers. Still, borrowers should be completely clear on the loan they apply for and what it could mean for their future finances. A Personal Loan EMI calculator helps make more informed decisions regarding the loan and can also help save money on interest. Wondering how? Read on to find out.
Impact of Repayment Term on Interest Rates
Lending institutions determine an applicant’s Personal Loan interest rates based on several factors like loan requirement, income, DTI ratio, credit history, etc. Besides these, the repayment term they choose also impacts the interest rate they pay for the loan. Let’s see how it works.
Most loan providers have flexible repayment terms for Personal Loans, which allow borrowers to choose their loan terms on convenient, affordable EMIs. A longer repayment term keeps the lender’s money at risk for longer, due to which they tend to demand a higher interest rate. Moreover, a longer term means more EMIs for repayment. Since each EMI comprises small components of both principal and interest amounts, a longer tenure results in more EMIs, which increases the interest outgo by the term end. On the other hand, a smaller loan tenure is less risky for the finance company and encourages them to offer an applicant a lower interest rate. Therefore, the repayment tenure a borrower selects can significantly impact the interest rate.
A Personal Loan EMI calculator helps select a suitable repayment term with budget-friendly EMIs.
How Does a Personal Loan EMI Calculator Work?
The EMI calculator is an online tool that helps calculate the EMI amount for different loan terms. It is a simple and quick solution to balance the cash inflow and outflow and pre-plan the loan repayment. The formula box has three components – the loan amount, interest rate, and loan tenure – based on which it calculates the EMI amount to pay each month.
The calculator works with the help of a mathematical formula given below:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Here, P is the principal amount, R is the rate of interest, and N is the number of months in the loan tenure. Based on these three variables, the EMI amount changes each time the user changes the values. Since the borrower pays loan EMIs in monthly instalments, the tenure is calculated in ‘the number of months’. For instance, if an individual takes a three-year loan, the tool uses 36 months instead of three years to calculate the monthly EMI.
Other Financial Benefits of Using a Personal Loan EMI Calculator
An EMI calculator helps save money in several different ways. Here are a few financial benefits of using a Personal Loan EMI calculator:
Supports Budgeting
An EMI calculator helps people plan their budget by providing them with an estimate of interest amount and monthly instalments on loan. It allows borrowers to decide on the loan tenure and amount suitable for their financial situation. By selecting different loan amounts and terms, users can see how monthly EMIs change and compare them, after which they can decide on a feasible option for their budget.
Helps Compare Interest Rates
EMI calculators allow users to compare interest rates from different lenders. With so many institutions providing Personal Loans in India, finding one with the best Personal Loan interest rates is challenging. An EMI calculator streamlines the comparison process by allowing users to input different loan terms and amounts and compare interest rates from different loan plans. Based on this comparison, borrowers can make informed decisions and select a loan scheme with the right interest rate to save money on monthly payments.
Calculates Monthly Instalments
EMI is the amount one must pay every month to pay off their loan fully. Getting an estimate of the loan EMI gives an understanding of how much one should be ready to pay each month and plan their budget accordingly. An online calculator helps calculate the EMIs based on the loan amount, interest rate, and loan tenure.
Aids in Loan Planning
A calculator helps plan the loan repayment by providing an amortisation schedule. It shows the breakdown of the instalments into principal and interest components for each EMI during the loan tenure. Borrowers can use this information to understand how much of their monthly income will go towards the interest and how much towards the principal. Overall, it can be a useful tool for planning and tracking loan repayment progress.
Assists in Selecting the Right Loan Term
An EMI calculator helps borrowers choose the right loan term by providing them with an estimate of the total interest for various tenures. It can be a useful tool for understanding the impact of different loan terms on the overall loan cost. It also helps in comparing the total principal amounts and interest rates for different terms, based on which borrowers can decide on a loan term suitable for their repayment capacity.
Helps Choose the Right Loan Amount
Based on the total interest outgo and EMI amount, borrowers can apply for an adequate loan amount that they can repay conveniently. Therefore, it can be a great tool for comparing EMIs and total interest costs for various loan amounts, helping borrowers decide on a loan amount according to their financial situation.
A Personal Loan EMI calculator helps borrowers make informed decisions regarding their loans. It allows them to budget, calculate EMIs, compare Personal Loan interest rates, and get an amortisation schedule to plan loan repayment, select an appropriate loan tenure, decide on the right loan amount, and save the effort and time required for manual calculations. By using an online calculator, loan seekers can ensure they get the best loan deal possible within their monthly budget.
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