When you apply for a Personal Loan, one of the first things you should understand is the EMI. Your EMI tells you how much you need to pay each month to repay the loan, including both principal and interest. In this post, you will get a step-by-step process to calculate EMI for a 5 lakh loan and how you can use tools like a monthly EMI calculator for Personal Loans to simplify the process.
What is EMI and Why is Knowing it So Important?
Equated Monthly Instalment (EMI) is a fixed amount that a borrower pays to a lender every month until the loan is fully repaid. This has two parts: the principal amount, which is the loan amount borrowed, and the interest charged on the loan.
Knowing the EMIs is very important because they:
- Help you plan your monthly budget effectively.
- Ensure that your loan repayment is manageable over the tenure.
- Provide a clear understanding of the financial obligation you’re committing to.
For instance, if you take a 5 lakh loan for a tenure of 3 years, your monthly EMI will depend on the interest rate offered by the lender. Understanding this calculation helps you plan your expenses better.
What are the Factors That Affect Your EMI?
Your EMI amount is influenced by several factors. Before calculating your EMI, it’s essential to know how these factors impact your repayment.
- Loan Amount: The principal amount you borrow, in this case, is Rs. 5,00,000.
- Interest Rate: The percentage charged on the loan by the lender.
- Loan Tenure: The duration over which you plan to repay the loan.
- Processing Fees: Though not part of the EMI, they affect your overall loan cost.
What is the Formula for EMI Calculation?
EMIs can be calculated manually with the help of this formula:
EMI= P x R x (1+r)^n/((1+r)^N – 1,
Where:
- P is the principal loan amount (e.g., Rs. 5,00,000).
- R is the monthly interest rate (annual rate divided by 12).
- N is the number of monthly instalments (loan tenure in months).
The Step-by-Step Process to Calculate EMI Manually
If you prefer to calculate EMI without using a tool, follow these steps:
Step 1: Convert the annual interest rate into a monthly rate.
Divide the annual interest rate by 12. For example, if the rate is 12%, the monthly rate is 12/12=1% or 0.01.
Step 2: Determine the total number of instalments.
Multiply the loan tenure (in years) by 12 to get the total number of months. For a 4-year loan, 4×12=484 \times 12 = 484×12=48 months.
Step 3: Apply the values in the EMI formula.
Substitute P, R, and N into the formula. For example:
- P = Rs. 5,00,000
- R = 0.01
- N = 48
After performing the calculations, you’ll get the EMI amount.
Using a Monthly EMI Calculator for Personal Loan
If manual calculations seem too much for you, you can use a monthly EMI calculator for Personal loans available on various lender’s websites or apps. It uses the following formula: EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Steps to Use an EMI Calculator:
- Enter the loan amount: In this case, Rs. 5,00,000.
- Input the interest rate: For example, 12%.
- Select the loan tenure: For instance, 3 years or 36 months.
- Click ‘Calculate’ to view the EMI amount.
The calculator will display not only the EMI but also a breakdown of the total interest payable and the total amount repaid.
Adjusting Variables to Find the Best EMI
One of the finest aspects of an EMI calculator is flexibility. You can change some aspects like loan tenure and interest rates to see how they affect your EMI.
- Shorter Tenure: Higher EMIs but lower overall interest payments.
- Longer Tenure: Lower EMIs but higher overall interest payments.
For example, if you take a 5 lakh loan for 2 years instead of 3 years, your EMI will increase, but you’ll pay less interest over time.
What are the Benefits of Using an EMI Calculator?
Using a monthly EMI calculator for Personal Loans simplifies the calculation for you and offers several advantages. It makes sure that you have all your financial commitments right in front of your eyes before you can apply for a loan.
- Accuracy: Eliminates human error in calculations, ensuring you know the exact EMI amount.
- Time-Saving: Get instant results without complex manual calculations.
- Budget Planning: Helps you adjust variables to choose the most suitable loan tenure and amount.
Conclusion
For a Personal Loan, an EMI calculator allows the user to figure out the suitable repayment plan and what is possible on the existing balance. Hence, this easy, step-by-step guide would equip you completely with your commitment to managing funds better and allow informed decisions concerning Personal Loans.
Disclaimer:
CBD:
Qrius does not provide medical advice.
The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) outlaws the recreational use of cannabis products in India. CBD oil, manufactured under a license issued by the Drugs and Cosmetics Act, 1940, can be legally used in India for medicinal purposes only with a prescription, subject to specific conditions. Kindly refer to the legalities here.
The information on this website is for informational purposes only and is not a substitute for professional medical advice, diagnosis, or treatment. Always seek the advice of your physician or another qualified health provider with any questions regarding a medical condition or treatment. Never disregard professional medical advice or delay seeking it because of something you have read on this website.
Gambling:
As per the Public Gambling Act of 1867, all Indian states, except Goa, Daman, and Sikkim, prohibit gambling. Land-based casinos are legalized in Goa and Daman under the Goa, Daman and Diu Public Gambling Act 1976. In Sikkim, land-based casinos, online gambling, and e-gaming (games of chance) are legalized under the Sikkim Online Gaming (Regulation) Rules 2009. Only some Indian states have legalized online/regular lotteries, subject to state laws. Refer to the legalities here. Horse racing and betting on horse racing, including online betting, is permitted only in licensed premises in select states. Refer to the 1996 Supreme Court judgment for more information.
This article does not endorse or express the views of Qrius and/or its staff.
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius
