# Why using EMI Calculator is Important before Applying for Personal Loan

On 6 Oct., 2018

## An EMI or Equated Monthly Instalment is a fixed amount of money that you need to pay to your bank or financial institution every month as repayment towards the loan you have taken until your loan is fully repaid. In simple terms, an EMI is nothing but a loan feature that lets you borrow money for immediate use while allowing you to pay it back in installments over an extended period of time. The EMI value depends on the loan amount, interest rate charged and the tenure.

Simple, isn’t it?

But do you know what does EMI Calculator constitutes? What if you want to calculate the EMI of your loan product?

Let us answer all these questions here and make it both sound and make simple for you.

EMI depend on three components – loan amount, tenure of loan and rate of interest. The number of EMI you need to pay and the amount of instalment are inversely proportional to each other.

For example

Mr. X wants to purchase a mobile phone online worth Rs. 15,000 wherein the EMI mentioned is Rs. 1400 per month with no cost EMI. In case Mr. X purchases it on EMI, then he will be required to pay Rs. 1400 per month for approximately 11 months (Rs. 15,000/ 1400 = 10.71 approx ~ 11 months). This is how EMI works in this case.

Lets consider one more example

Mr. X takes a personal loan of Rs. 2,00,000 for a period of 1 year with an interest of say, 12% p.a. This formula for calculating EMI is:

EMI = P x r x (1+r)^n

[(1+r)^n – 1]

Where P = Principal amount; r = rate of interest, n = Tenure

Principal (P) = Rs. 2,00,000

Interest (r) = 12% per annum

or

12%/ 12 = 1% per month

Tenure = 1 year or 12 months

EMI = ( 2,00,000 * 0.01 * (1+0.01) ^ 12 )

[ (1+0.01) ^ 12 – 1 ]

= Rs. 17,770 approx

Hence the total amount payable will be

Rs. 17,770 * 12 = Rs. 2,13,240

wherein the interest component is Rs. ( 2,13,240 – 2,00,000 = 13,240 ).

In this manner, the total amount of loan is repaid inclusive of the basic amount i.e. principal and the interest component.

1) Calculate principal amount if EMI, rate of interest and tenure are known

Suppose if you know how much you can pay EMI amount per month, rate of interest offered and for how much time period you can pay then you can easily calculate your loan principal amount.

Mr. X is able to pay an EMI of Rs. 15,000 per month for 1 year at 12% p.a. Then you can get a loan of Rs. 1,68,826.

2) Calculate rate of interest if principal amount, EMI and tenure are known

Suppose if you know your loan amount how much you want, EMI amount you will pay and for how much time period you want to pay then you can easily calculate the rate of interest.

Mr. X wants a loan of Rs. 2,00,000 at an EMI of Rs. 17,000 per month for 1 year. Then his rate of interest will be 3.67%

3) Calculate tenure if principal amount, rate of interest and EMI are known

Suppose if you know your loan amount how much you want, rate of interest and EMI amount you will pay then you can easily calculate how much time period it will take to repay your loan amount with interest using EMI Calculator.

Mr. X wants a loan of Rs. 2,00,000 at an EMI of Rs. 17,000 per month at 12% p.a. Then his total tenure will be 12 months to repay the complete loan amount.

With factoHR – HR and Payroll software, companies can calculate employees loan advances and auto deduct loan amount at the time of payroll.

Loan statement can be downloaded at any point of time from software & from mobile app also.