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Monday, 26 June 2017

Easy Ways to Calculate EMI for Your Loan

Applying for a loan is an important investment decision as it has a significant impact on your finances and savings.If not planned well and in advance, you might as well be relying on your luck for the EMI planning to work itself for your favor. While planning for the most feasible EMI plan for a home, personal or business loan you need to find the best EMI plan that will not burn a hole in your pocket every month.





Three Methods For Calculating EMI

First Method:

Manually, with the help of a calculator by using the formula:

This method consists of two steps:

Step 1

The value of R, rate of interest is always given for a year, i.e. it is the rate of interest per annum.
To convert it to the monthly rate of interest-
                     R
              12x100

The value obtained after performing this step has to be input into the EMI formula given below in step 2

Step 2

EMI= [PxRx(1+R)N]      where P= Principal amount borrowed as loan
            (1+R )N                                R= Rate of Interest per month
                                             N= Number of monthly installments





Second Method:

Using a Spreadsheet on Microsoft Excel with the PMT function

All you will have to do here is use the right values for the three variables namely-

Rate- Rate of Interest,
Nper- Number of Periods
Pv- Loan Value or Present Value




Note- Here again, it needs to be remembered that the rate of interest will be the  rate of interest to be charged per month and not annually as EMI is calculated for a month.

Third Method:

Using an EMI calculator Available Online

There are three types of online EMI calculators available which can give you an estimate of the EMI to be debited every month. You will have to feed in the correct details in the respective fields for loan amount, rate of interest and the tenure. Once all the details are filled in, the calculator will display the EMI.



a.) Use Personal Loan Online EMI Calculator:

This Online Personal Loan EMI Calculator is very easy to operate, you just need to feed the following values:
  • Loan Amount
  • Tenor (in months)
  • Rate of Interest
As shown in the figure below:


b.) Home Loan EMI Calculator:

You can easily calculate monthly EMI with the help of Online Home Loan EMI Calculator by filling the following values in the respective fields:
  • Loan Amount
  • Tenor (in months)
  • Rate of Interest
As shown in the figure below:


c.) Consider Business Loan Calculator:

Calculate EMI for Business Loan within a few simple clicks using Business Loan EMI Calculator by filling the following values.
  • Loan Amount
  • Tenor (in months)
  • Rate of Interest
As shown in the figure below:

Watch this Online Video: How Online EMI Calculator Works



Tips For Easy and Correct EMI Calculation

  • Relying solely on the first manual method is not advisable as these calculations are always tedious unless you enjoy doing complex math.
  • Moreover, doing the calculation manually is not the best option as it is more prone to errors and unless you are very confident of yourself, you should opt for the Excel spreadsheet or an online EMI calculator.



Finding the Right Loan is Important

  • You need not be very knowledgeable about loan terms and interest rates in order to make a good and informed decision.
  • Depending on the purpose of applying for a loan, you ought to look at the various loan options available with banks and Non-Banking Financial Companies. For example, if you want to go abroad for a Master’s Degree, you can apply for an education loan or a personal loan.
  • The next step should be comparing the schemes and interest rates of various money lending institutions to compare the EMI plans. This is where a lot of people falter.
  • On reaching this stage, compare all available options to find the loan and EMI plan that suits your needs the best. You can check online on PaisaBazaar or BankBazaar to get a thorough look at all the possibilities and also compare them to filter out the most feasible options from the rest.
  • Here, you should take a comprehensive look at the loan schemes and not just the interest rates offered. This means that you should factor in other important aspects like EMI waivers, hidden costs, and exclusive benefits offered by the bank or NBFC apart from an attractive rate of interest.
  • Then, you should start by checking the EMI for the selected loans on the EMI calculator. You can either check on the respective website of the bank or NBFC as most of them have their own EMI calculating tool. If they do not have one, you can use a generic one easily available online.
  • It is best to use an EMI calculator of the respective site or of a website which has sufficient authority in the market.

Advantages of EMI Calculator

  • The biggest advantage of using an EMI calculator on the respective site of a specific money lending institution is that the chances of error in the EMI calculations are much lower. You can also manages finances with online calculator easily.
  • This is especially true for the loans with a floating rate of interest. In these cases, the rate of interest does not remain the same for the tenure of the loan due to varying market dynamics as well as the prevalent rates.
  • As most personal loans have a floating rate of interest, calculating the EMI on the respective site will ensure that you utilize the current rate of interest that will be applicable for your case in that particular period of time.
  • Doing so will also save you time which could be utilized to conduct more research on loans.
  • You can use different EMI calculators for different loans like home loans, personal loans and business loans.
  • Make sure that you are using the right EMI calculator for your case (along with the right rate of interest) to get error-free results in your calculations.

Note: These EMI calculators also take into account loan foreclosures and pre-payments as these two factors have a significant impact on the rate of interest you will be paying. Similar to the Credit Score Calculator, you can use this handy online tool and plan your next loan and EMIs in a much efficient manner.

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