How to Estimate equated monthly installment (EMI) on Personal Loan?

02 Feb

How to Estimate EMI on Personal Loan?

Finheal
Personal Loan
Tags: EMI, finheal, finheal.com, Personal Loan, personal loan interest rate
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Suppose that due to some urgent necessity, you borrow Rs 3 lacs from the bank. The personal loan interest rate in your case is 15% and you are paying an equated monthly installment (EMI) of Rs 10,400 per month for a period of 3 years. Whether this amount is correct or not, how much interest is being paid every month, how much principal is being repay every month are some questions, for which you don’t have answers.

So it is in your benefit to understand how banks estimate your loan EMIs.

Personal Loan EMI Calculator – Finheal

As you already know, equated monthly installment (EMI) is a fixed monthly amount that you require to pay every month till the loan is cleared off. The biggest benefit of EMI is that you know accurately how much you require paying every month. This helps in good planning of your personal finances in advance.

Now the EMI calculations depend on following 3 factors:
Loan Amount
Interest Rate
Loan Tenure

There are several personal loan EMI calculators available online that you can use to calculate you’re EMIs. Or you can even use a simple formula in MS Excel software.

The function that needs to be used in Excel is PMT. The formula specific to personal loan EMI calculation is as follows:

= PMT [(Annual Interest Rate)/12, Number of EMIs, Loan Amount]

So for instance, the EMI for a principal amount for Rs 3 lacs borrowed at 15% interest for 3 years (36 months) is Rs 10,400.

Now each EMI includes contributions towards both principal and interest on the loan amount. To know more about each part, what is required is a Loan Amortization Schedule. It is a tabular representation of loan repayment schedule along with all details like break up between the interest and principal component of each EMI. One quick look at the agenda tells exactly how the loan is being repaid and how much is the exact exceptional left to be paid.

In the initial stages of the loan, the interest part forms the main portion of the EMI. But as you progress along, the portion of interest repayments reduce and principal repayment increases.

Since we are talking about Personal Loan, it is significant to note that personal loans interest rates are usually fixed. So the EMI payment remains constant throughout the tenure. In case of floating rate loans, the EMI payments also differ with change in rates.

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