Why Should You Use an EMI Calculator Before Applying for a Loan?

By Akshay Sharma December 7, 2018 Finance

Getting the loan sanctioned is not the end of the road. Its repayment is probably the most important aspect, failing which your credit score takes a hit. A personal loan EMI calculator can help you make financial provisions beforehand so that your monthly installments don’t suffer.

With the cost of living rising, loans have become a crucial means of financing. A personal loan can help you meet a variety of financial requirements – be it renovating your residential space, funding your child’s education expenses, consolidating all existing debts into one, settling urgent medical expenditure or taking your family to that long-awaited vacation. It is the utility and versatility of a personal loan that makes it so popular.

However, remember that even a single instance of late or irregular repayment can significantly affect your CIBIL score. A personal loan EMI calculator can help you gauge the funds that you’d need to pay the monthly installments towards the loan. This makes sure you stick to your monthly budget, while helping you stay on top of your finances.

How do you calculate EMIs?

The loan amount disbursed, tenor and the rate of interest are the three primary factors that constitute EMIs. While such installments are directly proportional to the interest rates on the personal loan, they are inversely proportional to the loan tenor. This means, higher the rate of interest, higher will be the EMIs. Conversely, higher the loan tenor, lower will be the EMIs.

The EMI calculation formula states:

EMI = [P*R*(1+R) ^ N] / [(1+R) ^ (N-1)], where:

P = Principal amount

R = Interest rate

N = Number of installments

The EMI will be calculated on the amount that you decide to borrow, irrespective of the sanctioned limit. For example, Bajaj Finserv Personal Loan sanctions up to as much as Rs.25 lakhs subject to competitive rates of interest. The Flexi Personal Loan arrangement allows you to withdraw as much as you need from within the limit and pay interest only on what you’ve borrowed, and not the entire loan limit.

Besides a loan calculator, you can also use the personal loan eligibility calculator to check if you qualify for a personal loan.

A personal loan EMI calculator helps you:

Stay on top of your finances

One of the primary use of an EMI calculator is that it allows you to make financial provisions beforehand. With an exact idea of the EMIs that you would have to pay towards the loan, a personal loan EMI calculator helps you stick to your budget so that you don’t default on the monthly installments.

Zero-in on the loan amount and tenor

With the calculator, you can change the tenor and the loan amount (besides the interest rate) as many times as you want till you arrive at a favourable EMI. This way, you also form a fair idea about what a suitable principal and tenor could be for you.

Carry out a comparison of the different loan terms

When it comes to loans and other financial instruments, there is certainly no ‘one-size fits all’ approach. While trying to avail a loan, the thumb rule is to shop around till you get the best offer that complements your financial objectives and make its repayment convenient at the same time. Other factors, besides the rate of interest, that need to be factored in include processing fees, foreclosure and prepayment charges, loan amount, tenor, etc.