Even before one applies for the loan, the one constant thing they worry about is whether they would be able to pay back the loan over time. For some, things get easier – a sudden promotion at the job with an enhanced pay package, often leaves them with extra cash to pay off existing loans quicker than expected. Unfortunately, for some, things might take a nose dip- sudden expenses elsewhere leave them unable to cope with the loan repayment. A personal loan EMI calculator is a wonderful tool for those who want to find out beforehand how much are they supposed to keep aside per month from their salary to continue with the monthly installments. For those planning on making huge investments for buying a home, or even a car, knowing this beforehand is essential because most of their future financial arrangements would be based on this information.
How to calculate Personal Loan EMI with online tools?
Using an EMI calculator for personal loans has several benefits, the most important one being that it helps an individual to make calculations down to the last decimal. Manually compiling interest rates is not impossible of course, but an EMI calculator will come up with the exact figures that would have to be paid each month, quite conveniently. The calculations have to be accurate because there are certain answers which one needs to the address about how to calculate EMI for personal loans:
- What is the interest rate to be paid on the total loan amount?
- What is the tenure of the loan?
- How much will the amount decrease over time when the loan is being paid?
The last question brings us to the concept of Amortization. This is the calculation that a personal loan EMI calculator comes up with describing- often with graphical representation- the gradual decrease in the amount of EMI. For example, if a loan is to be repaid over a fifteen year period, the EMI during the initial years would be quite high. However, as time progresses and the EMIs are timely paid with a combination of the principal amount and the interest rates, the total principal amount starts decreasing. Likewise, the interest amount decreases as well and during the last couple of years, the EMI amounts are almost a third of what one had originally started with. This clear representation is crucial for large loan amounts and one does not have to constantly check and recheck their calculations.
When does one have to be Cautious while Using EMI calculators?
Users of personal loan EMI calculator only have one concern to worry about and that is, what if the interest rates change over time, as in a floating interest arrangement? Some banks and financial institutes have fixed interest rates, which saves the debtor from paying still higher amounts if the Central Bank of the country suddenly plans on increasing interest rates. In that case, the calculations that the EMI calculator shows remains unchanged over time. However, in case the interest rates change, the monthly EMIs would change accordingly, and this might happen quite a few times in a turbulent economy, over the fifteen or twenty-year tenure for which the loan was applied for. This can throw all prior calculations out of line and every time there is a change in interest rate, fresh calculations would have to be made. For this reason, it is always advisable not to apply for the highest loan amount for which one is eligible for, unless absolutely necessary. It is alright to leave a minimum margin for further increase, unless one is absolutely sure that they would have a pay hike at work, or would be able to create an additional source of income which will make repayment easier is spite of changing in personal loan interest rate.
Using an EMI calculator is simple enough, one just needs all the data pertaining to the loan and a few clicks of the mouse will present a detailed chart. The algorithm recognizes the figures and makes flawless calculations that can be depended on while applying for a long term loan.