Best EMI calculator online
Calculates fixed monthly loan payments
Rate of Interest per annum( PA)
*This amount is calculated on 6% p.a. for the span of 5 yrs.
Overview of equated monthly installments (EMI)
Equated Monthly installment (EMI) is a financial term used in the concept of loans. It represents a fixed sum of money that needs to be paid by the borrower to the lender of the loan at regular intervals, which is usually on a monthly basis. EMI is an extremely organised and well-planned approach to repaying debt obligations while simultaneously ensuring consistency. It is commonly used in several types of loans, such as home loans, education loans, car loans, etc.
The EMI amount typically includes two components, the principal amount and the interest amount. The principal refers to the original loan amount borrowed, whereas the interest component refers to the cost of borrowing. The EMI calculation is typically done keeping in consideration factors like the loan amount, interest rate, and tenure of the loan.
Significance of EMI in loan planning
- Structured repayment: EMI facilitates a structured and disciplined repayment schedule for borrowers. Being a regular instalment system, it helps borrowers plan their finances because having clarity with respect to the fixed monthly outflow, borrowers can align their expenses accordingly.
- Financial discipline: Regular EMI payments encourage financial discipline among borrowers. Additionally, consistent and punctual repayments significantly contribute to a borrowers credit score, indicating his reliability to the lenders. Maintaining a healthy credit profile is imperative to ensure that future borrowing opportunities can be easily availed of.
- Risk mitigation for lenders: EMI serves as a risk mitigation tool for lenders because regular repayments ensure a steady and stable source of funds, thus reducing the risk of default.
- Long-term financial planning: Understanding EMI considerations plays a crucial role in the long-term financial planning of the borrowers. This is possible only if borrowers can strategically plan their EMI obligations and utilise the extra funds available for making investments.
- Financial insights: EMI provides borrowers with financial insights by helping them gain a comprehensive understanding with respect to their loan obligations. These insights promote financial literacy and informed decision-making among borrowers.
- Impact on credit score: Regular EMI payments are directly proportional to the borrower’s credit score. A higher credit score indicates the reliability and creditworthiness of the borrower, thus facilitating favorable terms in borrowing a loan. On the other hand, lower credit scores indicate a higher risk of default from the borrower.
How is EMI calculated?
EMI is calculated using the mathematical formula mentioned below:
EMI = [P x R x (1+R) ^N]/ [(1+R) ^ (N-1)]
P refers to the principal amount of the loan
R refers to the rate of interest
N refers to the tenure of the loan
Factors affecting EMI
Equated Monthly Instalments (EMIs) are affected by several factors that are mentioned below:
- Loan amount: The principal amount of loan borrowed directly impacts the amount of EMI. Considering other factors to be constant, the amount of EMI increases as the amount of loan borrowed increases.
- Interest rate: Higher interest rates lead to higher EMI amounts, whereas lower interest rates result in lower amounts of EMI.
- Tenure of the loan: The tenure for which the loan is taken is also a significant factor in determining the amount of EMI. Longer loan tenures usually have lower EMIs but higher interest payments, whereas shorter loan tenures have higher EMIs but lower interest costs.
- Prepayment or part payment of the loan: Making early repayments entirely or partially reduces the outstanding amount of the loan, thus leading to a reduction in the subsequent amounts due.
- Credit score: The borrowers credit score can directly affect the interest rate offered by lenders. A higher credit score can lower the interest rate and facilitate more favorable terms for EMI and vice versa.
An EMI calculator is a financial tool that assists borrowers in estimating the amount of monthly payments they need to pay until the entire loan obligation is settled. It serves as a valuable tool to help borrowers plan their finances accordingly. Loan EMI calculators are available online and provide instant calculations.
Benefits of using an EMI calculator
- User-friendly interface: Using an EMI loan calculator requires only basic details to be input, such as the amount of loan taken, the tenure of the loan, and the current rate of interest on the loan. This makes the interface easy to use as there are no technical terms required, thus making it easy for everyone to make use of it.
- Decision-making: It allows investors to make well-informed decisions with respect to taking loans so that individuals can align their financial goals in accordance with their financial threshold.
- Time-saving: By using a loan EMI calculator online, one can simplify the process of calculation of expected returns as it eliminates the need for extensive manual calculations required while estimating the EMI amount.
- Free to use: People can use the loan EMI calculator for free. Additionally, they can use it as many times as required, without any usage limit or charges.
Using the EMI calculator
Now that we are aware of the various advantages of a loan EMI calculator, heres a step-by-step guide for you to make use of it:
- Step 1: Open the EMI calculator
The first step is to open a loan EMI calculator on your mobile or laptop.
- Step 2: Input the loan amount
The next step is to input the loan amount that you are planning to borrow.
- Step 3: Enter the interest rate
Input the annual interest rate provided by the lender or the bank.
- Step 4: Enter the loan tenure
Specify the number of years you intend to take to repay the loan obligation.
- Step 5: Click on ‘calculate/proceed’
After entering all the required details, click on ‘Calculate/Proceed’ to initiate the calculations.
Once you have followed the steps mentioned above, you can easily calculate the EMI on your loan.
Loan management tips
Borrowers must follow a few tips to manage their loans and EMIs efficiently. Some of them are:
- Creating a budget: It is imperative for borrowers to develop a budget that outlines the income sources as well as monthly expenses to get a clear understanding of their financial position. This budgeting will assist them in assessing their financial threshold to pay their loan obligations on time.
- Scheduling EMI calendar: Timely payments are imperative in order to maintain a positive credit score and avoid heavy penalties. Scheduling the payment dates in a calendar will help in keeping track of dates in a systematic manner.
- Ensuring timely payments: It is important to make consistent and timely payments to maintain financial discipline and avoid potential negative impacts on the credit score.
- Avoiding unnecessary debt: Individuals must learn to differentiate between essential and non-essential expenses. This awareness will help to avoid raising debt for unnecessary expenses.
- Staying educated and updated: Staying updated on financial matters like interest rates and market trends is equally important to ensure that you are well aware of the finance industry. This will further promote informed and rational financial decisions.
In conclusion, Equated Monthly Instalments (EMI) prove to be a useful source that allows individuals to make purchases without incurring an immediate financial burden. However, it is important to be aware of the constant changes in the finance industry and the economy. Borrowing loans without having proper knowledge of how EMIs work can be a tough decision.
What is an EMI?
Can the EMI amount change over time?
What happens in case of prepayment or part-payment of the loan?
How does loan tenure affect EMI?