How is the EMI calculated in a Personal Loan from a Bank?

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How is the EMI calculated in a Personal Loan from a Bank?

You might be wondering how banks calculate the EMI as well as the interest rate on your personal loan application. Your EMI as well as the interest ra

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You might be wondering how banks calculate the EMI as well as the interest rate on your personal loan application. Your EMI as well as the interest rate depends on a lot of factors when you apply for a personal loan in any major bank. As soon as the bank receives your loan application, the bank is bound to run a background check on your profile and to look out for any discrepancies. Apart from any discrepancies in your credit report, your income plays a vital role in determining the interest rate that the bank would be charging on your personal loan application. To calculate your monthly EMI Banks use a personal loan EMI calculator to determine your EMI along with your monthly interest rate. 

EMI Calculator

Banks use these EMI calculators to determine the EMI on your personal loan. The personal loan EMI calculator is designed in such a way that the banks just need to enter the principal amount along with the interest rate and the loan tenure. The EMI calculator will then calculate and show you the exact EMI amount. Different banks have their own EMI calculators, to calculate the EMI amount on the personal loan. The EMI is made up of the principal amount and interest charged on the loan. As a result, the EMI equals the principal plus the interest paid on the personal loan. The EMI is normally fixed for the duration of your loan, and it must be paid on a monthly basis. 

EMI is generally calculated by using the simple mathematical formula that is mentioned below:

P x R x (1+R)N / [(1+R)N-1] is the mathematical formula for EMI. 

Where,

P is the loan’s principal amount.

R is the interest rate.

N is the number of monthly payments.

Please note that your loan EMI is largely determined by the interest rate and the tenure of your loan. The higher the loan’s interest rate, the larger your EMI, and vice versa. In the same way, a short term loan raises your EMI, and vice versa.

 

Benefits of personal loan EMI calculator

There are various benefits of using a personal loan EMI calculator. Some of its benefits are listed below:

  1. Adjustable EMI- Your loan EMI depends on the loan amount, the interest rate and the loan tenure. You can adjust the loan EMI by adjusting any factor to match the EMI up to your expectations. 
  2. CIBIL Score remains the same- Your CIBIL score takes a hit when you miss out on a loan repayment but when you have already calculated the EMI before taking out the loan, the chances of missing out on the loan EMI are comparatively less. Therefore there are less chances of a negative impact on your CIBIL score. 
  3. Accurate Results- When compared with the traditional methods to calculate the loan EMI, the personal loan EMI calculator provides much more accurate results.
  4. Time Saving Method- Earlier when banks used to manually calculate the EMI on the loans, the process was very time consuming but the EMI calculator provide accurate results instantly saving a lot of time.

5. Easy to Use- The EMI calculators are designed in such a way that they can be used by anyone to calculate the EMI on their loans and can be directly accessed from the bank’s website.

 

Read Also: 5 Steps to take a Personal Loan from SBI