Estimating monthly EMI payments is important for borrowers to accurately plan their present and future finances. Digitised EMI calculators can streamline this calculation process by offering instant and accurate results. In fact, they can simplify the loan planning process by offering a comprehensive repayment structure to help borrowers understand how the loan will be amortised. This article offers a detailed guide on how to calculate your EMIs and why EMI calculators should be your go-to choice.
Formula to calculate loan EMIs payable
The following formula is used to calculate monthly EMI payments for a loan:
| EMI = [P x R x (1+R)^N]/[(1+R)^N-1] |
Here, P is the principal sum
R is the rate of interest
N is the tenure of the loan
Calculating loan EMIs: An example
Understanding the EMI calculation process becomes easier when with an example. Suppose you want to borrow a personal loan of Rs. 5 Lakhs for 5 years. Your selected NBFC is offering the loan at an interest rate of 12%. Inputting these variables in the above formula we get:
P = 5,00,000
R = 12% (annual) = 12/12/100 = 0.01
N = 5 years or 60 months
EMI = [5,00,000 x 0.01 (1+0.01)60]/[1+0.01]60-1]
= 11,122.22
Using EMI calculators to compute monthly EMI payments
You can manually compute EMIs for loans using the above-mentioned formula. However, solving the equation will take time and effort. The scope for human error is also significantly high. Instead, you can opt to calculate EMIs using digital EMI calculators available on various online marketplaces and aggregator sites.
Here’s how you can calculate monthly EMIs using an online EMI calculator:
- Enter the principal amount you want to borrow.
- Specify the rate of interest charged by the lender.
- Select a suitable tenure for your loan.
- Click ‘Calculate’.
Once you complete these steps, the EMI calculator tool will automatically display the estimated monthly EMI for the loan. Additionally, it will also show you the total interest costs of the loan, along with the aggregated loan value.
How can a loan EMI calculator help you
Loan EMI calculators can help you in the following ways:
- EMI calculators can help you estimate monthly obligations accurately to better plan your finances.
- Using this digital tool can help you save time as you don’t have to perform long and complex calculations manually.
- Calculating EMIs using an EMI calculator tool also minimises chances of errors, ensuring accurate results each time.
- You can access different types of EMI calculators available online to estimate your EMIs and gain loan-specific insights on the EMI break-up.
- Apart from EMI calculators calculating monthly EMIs payable, EMI calculators also offer access to a detailed amortisation schedule for the loan. This allows you to check the principal and interest composition of each EMI payment.
Factors that impact your loan EMI payments
The following factors can impact the magnitude of your monthly EMI payments:
- Interest rates: Generally, the higher the interest rates on a loan, the higher your EMIs. Additionally, if the loan is sanctioned against a fixed rate of interest, then your EMIs remain constant throughout the loan tenure. However, if it is sanctioned against a floating rate, the interest rate applicable will vary depending on market conditions and the RBI’s repo rate. If the rate fluctuates, your monthly payment obligation will also vary.
- Tenure: Choosing a longer tenure for repayment will result in lower monthly payment obligations but higher interest expenses in the long-run. Opting for a shorter repayment tenure will mean higher monthly EMIs, but lower interest expenses over time.
- Loan amount: A larger loan amount can increase your monthly EMIs since you need to pay more monthly to cover the sizable sum due.
- Prepayments: Your monthly payments can also be affected by partial prepayments. If you make part-prepayment for loans, the entire prepaid amount is used to repay the principal due. Since the interest is calculated on the outstanding principal, this subsequently reduces the interest as well, leading to smaller EMIs.
Conclusion
Calculating your monthly EMI payments ahead of time can help you make informed borrowing decisions. EMI calculators can be indispensable partners in this process, allowing you to understand how your EMIs will change with changes in the principal amount, tenure, and interest rate. So, if you are about to apply for a loan from an NBFC or bank, you should first use an EMI calculator to estimate potential monthly payments and assess if the loan aligns with your budget.
