India had positive growth in the personal loan vertical by 11.2% from fiscal 2020 to 2021.
However, due to the downturn of the commodity price and the current global economic meltdown triggered by the COVID19 pandemic, the NPA or proportion of bad loans is expected to hit the roof later this year – RBI’s stress test report,
The gross NPA is expected to rise by 15.2% by the end of March 2021.
In high-stress situations, it could also reach as high as 16.3% during the forecasted period.
Therefore, every borrower must learn how to calculate personal loan interest rates and payments.
You can calculate your personal loan monthly payment yourself manually or use excel or other online calculators.
It’s important to calculate personal loan EMI before applying for credit this year. It would help you to plan your finances beforehand and manage your liabilities efficiently.
Steps to calculate personal loan EMI
The following is the traditional formula you can use to calculate personal loan EMI.
EMI = [P x (R/100) x {1+(R/100)} ^N]/ [{1+(R/100)} ^ (N-1)]
Here, P= Principal; R= Monthly interest rate (annual rate/12); N = tenor in months
However, using this formula to calculate the cost of borrowing manually is a bit difficult if you’re not a mathematician.
Also, there’s a tendency of making mistakes and getting the wrong result.
To mitigate this potential error, you should rather use a free online personal loan calculator that facilitates smooth EMI calculation.
You can use this online tool in simple steps.
i. Visit the website of your preferred lender and navigate to its calculator page.
ii. Enter your loan amount, tenor, and interest rate proposed to you.
iii. Click on “calculate”, and the result will appear on the screen.
You can also adjust all these components using the sliders. However, to choose the best suitable repayment structure for a personal loan, you need to take care of a few aspects.
Factors to consider while calculating personal loan EMIs
Besides knowing how to apply for a personal loan, you also need to consider the following factors that determine the overall borrowing cost.
Principal
The principal capital is very important in determining the EMI outgo of your personal loan.
You have to pay higher EMIs if you choose a significant loan amount. Hence, decide the loan amount after assessing the requirement.
Along with that, calculate personal loan EMI as well to make an informed decision.
Tenor
Besides the loan volume, individuals also need to find the right personal tenor that works for them.
Generally, this credit tenor ranges up to 60 months, and you can choose which one suits your budget and revenue.
However, remember that while a longer tenor results in lower EMI, the overall cost tends to rise. Hence, before deciding this factor, individuals should calculate the total interest payable.
For instance, suppose Techpally services LLP services a personal loan of Rs.5 lakh with an interest rate of 14% for 36 months. The company has to pay an EMI of Rs.17089, and the total interest payable is Rs.115194.
On the other hand, Businesspally group services the same loan at the same rates. However, the tenor is 48 months.
Although businesspally group has to bear Rs.13663 as EMIs, her total interest payable would be significantly higher at Rs.155839.
Interest rates
The interest rate of a personal loan and EMI are directly proportional. Hence, you need to find ways to avail better interest rate for their personal loan.
In this aspect, you first need to know the interest calculation methods like the reducing method or flat interest calculation.
Amortization schedule
Another great way to get an overall idea of personal loan monthly installments is by studying the amortization schedule.
It contains the break-ups of the EMIs payable that helps to repay the loan with comfort.
Interest calculation during loan refinancing
Existing borrowers who opt for a loan refinancing to reduce their EMI burden also need to calculate monthly instalments to see how much they can save on interest payment. It would help them to plan personal loan repayment better.
Thus, as a borrower, you need to calculate personal loan EMI to make repayment on time and avoid defaulting on the loan.
