How to Use an EMI Calculator for Personal Loans
A very important factor to consider when opting for a personal loan is the Equated Monthly Installment, or more popularly, EMI. An EMI calculator will make this process rather simple and clear as to how much you need to pay every month. Here's a step-by-step guide on how to effectively use an EMI calculator for personal loans.
Input Correct Information about Loan The EMI calculator requires three major inputs:
Loan Amount: Mention the total amount you need to borrow.
Interest Rate: This is the rate from the lender.
Loan tenure: Enter the time to repay in months or years. The facility of giving the correct values generates a proper EMI.
Comparing Various Loan Tenures You can arrive at the cheapest EMI by altering the loan tenure. The longer the tenure, the lower will be the EMI but you will have to suffer more interest costs. Use this calculator to try various repayment periods and arrive at an optimum mix of low EMI with low interest.
Check Interest Rate Variations The interest rates might also differ from one lender to the other. You can try different rates in the EMI calculator and experience how a tiny variation affects your EMI. That would give you an idea about the lender that provides you with the most feasible option.
Explanation of Principal and Interest Breakdown Graphs in most of the EMI calculators denote the principal amount and interest paid in due course of time.
The graph will give you an idea as to how much of the monthly payment is going towards reducing the balance of the loan and how much is going towards paying the interest, as it were, useful for long-term financial planning.
Considering options about prepayment and part-payment Some EMI calculators even enable you to enter prepayments or part payments. Witness for yourself how early repayments can lessen the interest burden and reduce the tenure of the loan. This will help you in making better decisions with respect to future loan repayments.
Ability to Pay Before opting for a personal loan, calculate whether the EMI falls within your monthly budget. An EMI calculator would show whether one can comfortably handle the repayment together with other financial liabilities.
Keep a Record of the Fees for the Processes
Some lenders may also charge extra amounts as processing charges or fees. This will marginally affect your loan amount and EMI. Ensure that you add this expense when using the calculator to arrive at a correct estimate.
Conclusion Using an EMI calculator effectively means being fully aware of the loan repayment obligations. Further, you can try different values in the EMI calculator to make a prudent plan for a personal loan, ensuring that you select terms consistent with your financial objectives.