If you are planning to raise a personal loan and unsure of being able to repay it in the shortest time possible, then it is recommended to use a personal loan EMI calculator.
There are three inputs which you require for using an EMI calculator. These inputs are loan amount, rate of interest and the tenure of loan.
How the EMI is calculated
The final output that you receive is the monthly instalment of the loan. And this output is dependent on these three variables. This means as you tweak these inputs, your monthly instalment will change accordingly.
Let us understand this with the help of an illustration. Suppose you want to take a personal loan of ₹5 lakh on which interest rate is 11 percent per annum.
Initially, your loan agent recommends that you opt for EMIs spread across 30 months. In the current circumstances, your monthly instalment stands at ₹19,139.
If all you can afford to pay is lower than ₹13,000 then there are two options: opt for a lower interest rate or increase the loan tenure.
In the personal loan EMI calculator, when you increase the loan tenure to 36 months, the monthly instalment reduces to ₹16,369.
Now you can’t afford to pay even this instalment, you – therefore – enter 40 months. Now you realise that your monthly instalment becomes ₹14,987.
As you stretch your loan tenure further, say 48 months, your monthly instalment will decline further to ₹12,922 which is lower than ₹13,000. Now this is exactly you were looking for.
However, if you get an option to raise a loan at a lower interest rate then it is always better to choose this rather than simply extending the tenure of the loan. Conversely, if the lower interest rate is still not adequate to arrive at the right EMI then you can opt for a blend of both factors i.e., lower rate of interest and longer tenure of loan.
The idea behind these tweaks is to find the right balance in such a way that the monthly EMI is affordable.
(Note: Raising a loan comes with its own risks. So, due caution is advised)
