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What is EMI and How does One Calculate It?

What is EMI and How does One Calculate It?

| @indiablooms | 13 Oct 2017, 12:17 pm

Being a renowned term, many people are still unaware of the significance and the meaning of EMI. Equated Monthly Instalment (EMI) is a term which each individual gets associated to when he/she plans to take a loan or issue a credit card. Although, the word might sound a little one but has a broader aspect when it comes to practical life. However, if not known right, the term can turn into a nightmare.

An EMI is a fixed amount which the loan borrower has to pay every month. Furthermore, it helps you to pay the debts on an instalment basis. However, the borrower has to spend a major part of interest paying the EMI. Besides, the equated monthly instalment is used to pay both: The interest amount and the principal amount. So far, you also have to pay the amount on a specific date monthly and for a specific tenor period. The amount also varies according to the interest charged and the amount borrowed.
When talking about personal loans, since they have no such restriction with the use of its funds, you are free to borrow the amount you require (depending upon your repayment capacity). People often get confused with interest rate and the EMI amount and rather consider it as the same. Though, both these terms are totally different. The interest rate charged by the lender is always fixed, whereas the EMI amount can vary depending upon its factors. However, the interest charged on it differs from each lender. Plus the EMI that you will be paying depends upon three factors: interest rate, the amount borrowed and the personal loan tenor that you are going for. Depending on these three factors the lender calculates your equated monthly instalment.

How to calculate personal loan EMI?

When it comes to calculating the EMI, there are three ways how you can do it: using Excel, mathematical formula, and NBFC website.

● Using Excel:

It can be an easy way to calculate your EMI if you are doing it manually. However, you need to use the Excel spreadsheet for it. By using the tree factors rate of interest (rate), tenor (nper) and loan amount (pv), you can calculate the monthly instalments. Besides, you can use the formula PMT (rate, nper and pv) and calculate the EMI.

● Mathematical Formula:

Besides, if you are not good with Excel sheets, you can definitely use mathematical formulas to calculate the EMI. However, you can use the EMI = [P x R x (1+R)^N]/[(1+R)^N-1] formula and calculate the EMI.

● NBFC website:

In case if you are not good with the manual calculations and formulas, there is the third option which you can prefer. The online EMI Calculator can definitely help you with the calculation, as it is easy and time-saving. Besides, it is easily available on websites of Non-Banking Financial Companies (NBFCs). Calculating the EMI is quite easy here, as you just have to enter the three factors in the calculator and it will estimate the exact amount. You can also put different digits and check which EMI fits your pocket and then apply for the loan.

However, there are several benefits you can gain from, by using an online personal loan EMI calculator. The calculator is effortlessly accessible and shows instant results as it is easily available online and shows accurate results and helps you manage your financial planning. Additionally, it is important that you calculate the EMI before you approach your lender as well as you should also make sure you compare the interest rates of different financial institutions and then choose the one which fits you. As this will help you to estimate the exact EMI you are supposed to pay.

Also Read: What is EMI and How to Calculate EMI On Your Personal Loan?

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