Step-by-Step Guide to Calculate EMI for a Personal Loan

Personal loans are an ideal way to meet financial requirements, like medical emergencies, buying a car, funding education, and other needs. Before taking a personal loan from any lender, it is best to calculate the EMI for your personal loan, so you can make an informed borrowing decision.

Table of Content

• How to Calculate EMI for a Personal Loan
• Factors that Impact the EMI Amount
• Advantages of Using an Online Personal Loan Calculator

Calculating the EMI can help you understand what is affordable for you. This is a crucial step, because if fail to pay your EMIs on time, it can damage your financial record and creditworthiness. Calculating the EMI allows you to find a suitable loan amount and tenure that aligns with your financial capabilities. You can also use an online personal loan EMI calculator to get a better idea of how much your monthly instalments will be.

When you are looking for an instant personal loan online, you should use an EMI calculator to compare the EMI for a personal loan with different loan amounts, tenure, and interest rates.

Apart from using an EMI calculator, you can also get an idea of the EMI amount manually. Here’s more on how to calculate EMI for a personal loan, the factors that affect the EMI amount, and the advantages of using an EMI calculator:

How to Calculate EMI for a Personal Loan

If you want to calculate the EMI amount manually here are the steps that you should follow:

• Step 1: Collect the Necessary Information

This is the first step to calculating your EMI amount. You need to gather important information, like the interest rates being offered by lenders and the options in loan tenure that you have.

• Step 2: Convert the Interest rate into a Monthly Rate

Personal loaninterest rates are always presented as an annual rate, so you must convert the annual rate into a monthly rate. You can do this simply by dividing the interest rate by 12. For example, if a lender is offering a 12% annual interest rate on personal loans, the monthly rate will become 1% when the annual rate is divided by 12.

• Step 3: Calculate the EMI

The periodic EMI for a personal loan can be calculated using the following formula:

EMI = P X [R X (1 + R) ^ n] / [{(1 + R) ^ n} - 1]

Here, P is the principal loan amount that you want to borrow, R is the monthly rate of interest, and n is the repayment tenure in months.

• Step 4: Calculate the Monthly Interest Component

Every EMI comprises an interest component and a principal component. You can calculate the interest component using the following formula:

Interest Component = P X R

Here, P is the remaining principal amount, and R is the monthly rate of interest.

• Step 53: Determine the Principal Component

This is the part of your EMI that goes towards repaying your loan amount. Calculating the principal component has a simple formula:

Principal Component = EMI - Interest component

Factors that Impact the EMI Amount

The change in current market rates, loan tenure chosen, and several other factors can affect the EMI amount for repaying the loan. Some of the top factors that impact your EMI include:

• Loan Amount

The principal amount that you borrow under a personal loan is one of the key determinants of the EMI. If you borrow a higher loan amount, the EMI amount will also be higher and lower if you borrow a lower amount.

• Interest Rate

Personal loan interest rates are also another important factor that affects the EMI. A higher interest rate means a higher amount to repay, which results in a higher EMI amount as well.

• Loan Tenure

A longer loan tenure means reduced EMIs but an increased amount of interest payable. On the other hand, a shorter tenure translates into higher EMIs but lower interest payable. Apart from this, many insurance providers offer lower rates for shorter loan tenures, which in turn, also impacts the EMI.

• Prepayment or Partial Payments

You can make pre- or part-payments towards the principal amount. This reduces your outstanding balance, and subsequently, the applicable interest. It accelerates debt repayment and can help reduce your EMI or shorten the loan tenure.

Advantages of Using an Online Personal Loan Calculator

A personal loan EMI calculator is a convenient tool for calculating the EMI for any personal loan amount, tenure, and interest rate. All you need to do is enter the principal loan amount and loan tenure to get an estimated EMI amount based on average personal loan interest rates. The calculator provides you with the easiest way to calculate EMI for your personal loan. You can also use the calculator to find out EMI amounts for different loan amounts and tenures to make an informed borrowing decision.

With Muthoot Finance, you can avail an instant personal loan online with streamlined application, processing, and disbursal processes. You can also use the personal loan EMI calculator on the Muthoot Finance website and apply for a personal loan online with ease.