Whether you seek funding for a child’s education, or wedding, travel, medical emergencies, or even for business expansion, a personal loan comes to the rescue.
One of the top benefits of these unsecured advances is that they come with zero restrictions to end-use, which means you can address all or any financing need with the advance. Also, their unsecured nature leaves no room for risk to your personal or business assets. You only need to meet a few eligibility requirements to avail a personal loan.
However, like any other advance, the loan has a direct impact on your creditworthiness, which also means that you need to better plan your repayments.
Financial tools like the personal loan interest calculator can help a great deal in planning your personal loan repayments for informed borrowing decisions. So, let’s get to know what this tool comprises along with other related details that can be helpful in planning borrowing and repayment of your personal loan.
Meaning and Scope of a Personal Loan Interest Calculator
A personal loan interest calculator is a financial tool that allows you to estimate the total interest payable on your advance availed for the entire tenure. It is tailored to compute the interest amount based on a few essential loan factors like the amount of borrowing and interest rate.
It is also widely known as an online personal loan EMI calculator as it is widely used as an instalment calculator for the advance. The scope of this financial tool is widespread, spanning across calculation, estimation, and important borrowing decisions like how much loan to avail and what tenure period to go with.
Working of a Personal Loan Calculator
The financial tool is programmed based on a certain mathematical formula that is used for instalment computation in real-life scenarios. The formula used for such computation is as follows.
Equated Monthly Instalment of personal loan = Pxrx(1+r)^n/((1+r)^n-1).
Herein, the principal is denoted by the letter ‘P’, ‘r’ implies the rate of interest applied to the loan, and ‘n’ stands for the tenure involved expressed in months. So, if you avail of a personal loan for 5 years, the value of ‘n’ included would be 60.
Factors Affecting the Instalment Amount
When using an interest cum EMI calculator for a personal loan, it is important to know what are the factors that affect the two values and their impact on each other. Knowing this shall help you determine how your loan liability will be impacted for a wise borrowing decision. Such factors include the following.
The loan amount you need to avail
The financing amount you need to avail of a personal loan impacts both the interest calculation and the EMIs payable directly. It means that if you increase the loan amount, both EMIs payable and interest applicable will increase simultaneously, and vice versa.
You can thus change the value entered as a personal loan amount to bring the desired change in the repayment values obtained.
Interest rate applicable
Just like the loan amount, the interest rate applicable to a personal loan option also impacts both EMIs and interest accrued directly, thus increasing them with an increase in the rate.
However, the interest rate levy lies at the discretion of the lender, which means as a prospective borrower, you should change the applicable rate of interest when using the personal loan interest calculator for a particular loan offer.
The impact of tenure selected is slightly different for the EMIs payable and total interest accrued on your personal loan, which you should keep in mind when using the calculator. In the case of its impact on interest accrued, a change in tenure selected is linked directly to the interest computed on the loan. Thus, the interest you would need to pay for the loan would increase with longer tenure and decrease with a shorter one.
Contrarily, its impact is inverse on the EMIs payable. It means that a longer tenure would result in EMI reduction while tenure reduction will increase the EMIs payable.
All these impacts of loan calculator entries on the values derived can be crucial in helping you determine the exact loan amount and tenure that should help fulfil your financing needs without disturbing your affordability.
Results Obtained Through a Personal Loan Calculator
Apart from EMI computation, a personal loan interest calculator displays various other pertinent results related to your personal loan as well. Following are the results you can look forward to when using the tool.
- EMIs payable: As mentioned earlier, the financial tool is variedly used for personal loan EMI computation. To arrive at an affordable value for EMIs payable, you must select the loan amount and tenure carefully. If you desire to pay a higher EMI amount than initially calculated, you can consider reducing the tenure opted for. Similarly, willing to reduce the EMI amount, you can go for a tenure extension to arrive at a suitable value. Although changing the loan amount also impacts the EMIs payable, it is not suggested to do so as its reduction may lead to underfunding and an increase in the loan value can burden your finances unnecessarily.
- Interest payable: The loan interest calculator also displays the total interest payable on your personal loan for the selected loan amount payable up to a definite tenure chosen. Remember that your tenure selection impacts the interest payable too, which makes it essential to choose a tenure that balances your interest payout against EMI affordability.
- Total payment: You can also view the total payment to be made as personal loan liability by you through the calculator. It comprises the loan principal availed plus the total interest payable for the given tenure. It is just a combined reflection of what loan liability you would need to bear over the repayment duration selected.
- Amortization schedule: The personal loan interest calculator also displays an amortization schedule for your loan repayments. It is a detailed chart depicting a breakdown of the principal and interest component for each EMI that you would pay towards total loan repayment for the selected duration. It also reflects the percentage of the loan you have paid till the said date and the loan balance remaining to be paid by you for the outstanding tenure.
The personal loan interest calculator also displays the principle-interest pie chart. It is a pictorial representation of the total principal and interest you would need to pay as a percentage of the total loan liability accrued.
It helps compare interest payable to the amount of loan principal so you know how much extra you would pay as the cost of borrowing a given loan amount. You need to combine these details to derive a suitable borrowing decision that is both affordable and sufficient.