One of the most commonly acquired credit instruments in the Indian debt industry is the personal loan. As per a recent report, the Reserve Bank of India stated that personal loans witnessed year-over-year growth of 13.5% in March 2021 (1). A significant reason for the massive demand for these loans is their unsecured nature.
Individuals willing to acquire a credit via this financial instrument must be aware in advance of the EMIs they are comfortable paying. An online personal loan calculator can be an effective tool in this regard.
A Step-By-Step Guide to Using a Personal Loan Interest Calculator
Before discussing the steps of using a personal loan interest calculator, it is imperative to be aware of three vital parameters of this tool:
Rate of interest – The interest rate is applicable on the principal loan amount for a given period of time (loan tenor). It is expressed as a percentage.
Loan tenor – Tenor refers to the time period within which a borrower is liable to repay the entire loan amount along with interest. It is denoted either in months or years.
Principal amount or loan amount – Loan amount refers to the total amount that an individual borrows as a loan. Borrowers need to pay back this principal amount at the end of their loan tenor, along with interest.
Users must keep in mind that values for these three parameters can be entered into a calculator either manually or by using the given slider. This tool also comes with ‘+’ and ‘-‘ symbols for increasing or decreasing the amount entered. Individuals can now calculate personal loan EMIs through the step-by-step guide mentioned below:
Step 1: Enter the desired loan amount.
Step 2: Set the applicable rate of interest.
Step 3: Input loan tenor in years or months.
A personal loan interest calculator automatically displays EMI amounts based on entered values. The EMI displayed on this tool changes instantly when a user changes the values of these three parameters.
Benefits of using a personal loan interest calculator
Prospective applicants of emergency loans must note that they can benefit significantly by using a personal loan interest calculator prior to application. Given below are some of the benefits:
- Knowing equated monthly installments beforehand
Individuals who use a personal loan calculator get to know the amount they need to pay monthly for repaying the acquired credits.
- Accurate and time-saving
The calculation of equated monthly installments using the traditional EMI calculation formula is complicated, time-consuming, and prone to errors. However, a personal loan interest calculator provides accurate results in an instant.
- Managing budget
Individuals who want to apply for a personal loan can better manage their finances by knowing the payable EMIs in advance.
- Determining an appropriate loan tenor
An Interest Rate Calculator helps borrowers choose an appropriate loan tenor according to their budget by letting them know the total loan amount and interest payable.
Apart from the above facts, individuals must note that the amortization schedule for their loan also changes if values for the three parameters are changed. This can be best understood with the help of the following example:
For an individual who acquires a personal loan of Rs. 2 lakh at a 12% rate of interest per annum in 2021 for a tenor of 24 months, the amortization schedule will be as follows:
- For 2021, the total amount payable will be Rs. 65,905. Here, the principal component amounts to Rs. 53,488, and the interest component is Rs. 12,417. The outstanding amount will be Rs. 1,46,512.
- For 2022, the total amount payable will be Rs. 1,03,565. Here, the principal component amounts to Rs. 91,956, and the interest component is Rs. 11,609. The outstanding amount will be Rs. 54,556.
- For 2023, the total amount payable will be Rs. 56,490. Here, the principal component amounts to Rs. 54,565, and the interest component is Rs. 1,925. The outstanding amount will be Rs. -9, implying that the loan is entirely paid.
Besides knowing the advantages of using an EMI calculator, potential loan applicants must note that they can benefit from several offers if they acquire their loan from a reputed lender. For instance, renowned financial institutions extend several pre-approved offers on secured and unsecured financial products. These offers help simplify and accelerate the lending process. Applicants can check their pre-approved offers by providing a few details, such as their names and contact numbers.
Thus, individuals requiring urgent funds must use the personal loan interest calculator before acquiring credits.