How to Use a Personal Loan Calculator Effectively A User-Friendly Guide

Aug 01, 2023 / Reading Time: Approx. 4 mins

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A Personal Loan is a preferred financial solution when faced with immediate financial needs. The convenience of hassle-free online processes and pre-approved offers have made getting a Personal Loan easier than ever before. However, choosing the right loan amount and manageable EMI amount is crucial, as under-borrowing and overborrowing can have far-reaching financial consequences.

Ignorance and carelessness when availing of a Personal Loan can lead to a daunting debt trap, potentially resulting in a financial crisis that profoundly impacts your future. To help you navigate this borrowing landscape confidently and avoid the mistakes of overborrowing or underestimating EMIs, we, at PersonalFN, have developed a user-friendly Personal Loan Calculator. Using an online Personal Loan EMI calculator is the most effective method for computing and deciding on EMIs and the loan amount. This article is a user-friendly guide that explains how to use a Personal Loan Calculator effectively.

What Are the Benefits of a Personal Loan?

  • A Personal Loan can be used for various purposes, such as a medical emergency, home renovation, child's education, buying a new gadget, etc.

  • The loan approval process is smooth and swift, causing minimal hassle. An online Personal Loan approval process can take a few minutes to a few hours, whereas an offline process can take a couple of days to a week.

  • The documentation required is minimal, streamlining the application process.

  • The interest rate remains fixed throughout the loan tenure.

  • The loan duration is flexible, ranging from 12 to 60 months.

  • No security or collateral is required to get a Personal Loan.

  • Repayment can be made through convenient and manageable monthly instalments.

What Is a Personal Loan Calculator?

A Personal Loan EMI Calculator is a valuable tool designed to assist individuals in determining the amount of their future monthly instalments for repaying a Personal Loan. Using the PersonalFN Personal Loan Calculator, borrowers can easily estimate the Equated Monthly Instalments (EMIs) they will be obligated to pay. This handy calculation tool proves to be extremely beneficial as it helps in effectively budgeting your future finances, ensuring a clear understanding of the financial commitment required for loan repayment.

With the ability to project future EMIs accurately, you - the borrower, gain valuable insights into your financial obligations, enabling you to make informed and responsible decisions. This financial planning tool empowers you to assess whether you can comfortably manage the loan repayments and avoid any potential financial strain. By utilising the loan EMI calculator, you can plan your finances prudently and stay on top of your loan commitments with confidence.

What Is EMI?

EMI, short for Equated Monthly Instalment, refers to the monthly amount paid to banks or financial institutions until the entire loan is fully repaid. It comprises both the interest on the loan and the principal amount. The total sum of the principal and interest is divided by the loan tenure, resulting in the monthly payment. In the early months of repayment, a larger portion of the EMI goes towards interest, gradually decreasing with each payment. The exact proportion allocated to the principal depends on the interest rate. While the monthly EMI amount remains constant, the ratio of interest to principal changes over time. As the loan progresses, borrowers pay less interest and more principal with each successive instalment.

How to Calculate Personal Loan EMI?

The mathematical formula to calculate Personal Loan EMI is as follows;

EMI = P * R * (1+R)n / [(1+R)n] - 1

Where P = principal loan amount.

R = rate of interest calculated on a monthly basis, i.e. (R= annual rate of interest/12/100).

For instance, if R = 15% per annum, then R= 15/12/100 = 0.0125; and

N = the number of monthly instalments.

Let's understand it better with the help of an example. Suppose you take a Personal Loan of Rs 2,00,000 from a bank at the interest rate of 13% p.a. for a tenure of 2 years.

Your EMI, in this case, will be = 2,00,000 * 0.0108 * (1+0.0108)24 / [(1+0.0108)24] - 1

= Rs 9,508

How Is a Personal Loan Calculator Helpful?

Determining the EMI amount for a Personal Loan can be challenging, involving various factors that may perplex individuals not well-versed in EMI calculation intricacies. In such cases, a Personal Loan EMI calculator in India can prove to be a helpful resource.

By using this tool, one can swiftly perform these intricate calculations within seconds, thus saving precious time that can be used more productively elsewhere. Moreover, the calculator eradicates any possibility of inaccuracies in the computations, providing reliable results.

Furthermore, the Personal Loan EMI calculator empowers borrowers to plan their repayment strategy proactively, furnishing them with precise information about their EMI obligations. This foresight enables borrowers to make well-informed decisions and ensures a smoother, more organised loan repayment journey.

How to Use a Personal Loan Calculator?

The PersonalFN Personal Loan calculator swiftly produces results, allowing you to assess the affordability of your monthly payments. All that's required are three inputs: The Personal Loan amount (in Rs), the Personal Loan interest rate (percentage), and the Personal Loan Tenure (in months or years). You have the flexibility to use either the slider or the calculator table to input your loan values, and any changes to these inputs will trigger an instant recalculation and display of the updated result.

This powerful tool not only provides the EMI result but also offers valuable insights into the total interest payable over the loan tenure. A pie chart visually presents the breakdown of interest and principal payments, helping you plan your future cash outflows effectively.

By using the loan EMI calculator, you get a clear understanding of the maximum loan amount that you can comfortably repay over the loan tenure. At PersonalFN, we recommend maintaining an EMI-to-income ratio of approximately 40% of the total household income.

Similar to the PersonalFN's loan EMI calculator, many financial websites offer Loan EMI Calculators, such as HDFC Bank Personal Loan Calculator and ICICI Bank Personal Loan Calculator.

Before making any loan decisions, it is wise to use our EMI calculator to ensure a prudent and well-informed choice.

To conclude:

PersonalFN's Personal Loan EMI Calculator is a financial tool that simplifies the complex process of calculating EMIs and understanding the financial implications of a Personal Loan. By inputting a few loan details, you can instantly obtain accurate results, allowing you to make informed financial decisions about loan affordability and repayment strategies. By visualising the breakdown of interest and principal payments, you can plan your finances effectively and avoid potential financial strain.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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