Before what EMI calculator is let’s first understand what EMI simply means
EMI or equated monthly installment, as the name suggests, is a fixed amount paid monthly by the borrower to the lender for a specific time to repay the lender the principal with interest
For example, Raj wishes to buy a house worth Rs 1 Crore, but he doesn’t have the entire capital to pay upfront, hence he decides to opt for EMI from a bank. The bank lends him money under a housing loan scheme and now Raj is supposed to pay back a certain amount every month – known as installments. Installments will factor in both the principal to repaid as well as the interest component. The loan borrower needs to keep paying monthly installments till the loan is repaid in total.
How does an EMI Calculator work?
An EMI calculator is a handy instrument to calculate the installment payable every month to the lender.
the mathematical formula for calculation is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1];
where, P, R, and N are the variables, where:
P – Principle
R- Rate of interest
N – Period
By looking at the formula closely, we can understand that change in any of the variables will lead to a change in the outcome as well.
‘P’ represents the ‘Principal Amount’. This is the original amount lent by the lender. The loan amount will depend on your requirements and the purpose of the loan. Higher the loan amount, the more will be the EMI that you pay for the loan taken.
R denotes the ‘Rate of Interest’. This is the rate at which interest is charged on the principal loan amount. The interest rate will differ on the basis of loan is taken and the lender (bank) from which you are taking the loan. The rate of interest has a direct bearing on your EMI amount; hence, it is important to compare interest rates across banks before opting for a loan.
N indicates the number of years for which the loan has been taken. This period is known as the tenure. The tenure is calculated in months and not years since the payment is made every month. So, a tenure of 5 years is equal to 60 months, and so on.
What are the types of EMI calculators?
Personal Loan EMI Calculator
Personal loans have become pretty common these days, whether you are thinking of going for a holiday to the Bahamas, or for the renovation of your house, etc. It has become quite simple to take personal loans from various banks. EMI calculators can help you estimate your personal loan details regarding how much EMI you’ll have to pay to the banks, etc.
EMI calculator for education loan
The cost of education appears to be only increasing year after year, and if you intend to send your child for higher education, you may be in need of an Education Loan. Usually, these loans come with a postponement period so that one can start paying off the loan only once the education is complete.
Home Loans are one of the most common bank loans opted every year. They usually tend to comprise of large principal and a longer tenure in comparison with other EMI. This is why it is very important to make all your calculations well before you take a home loan.
Car Loan EMI Calculator
If not budgeted properly, buying your dream car could prove to be uncomfortable to the pockets despite the comforts of the new car. Be sure to run the numbers through Car Loan EMI Calculator prior to buying if you’re considering the EMI route.
Benefits of EMI calculator:
EMI calculator has several uses such as:
- They help the borrower in forecasting and budgeting.
For example, Mr. Ram a salaried man with a package of 2 lakh Rs per month wishes to purchase a dream home worth 60 lakhs, to know how much installments he can afford to pay every month, he can do it with ease by the use of EMI calculator.
- Accessibility: You can use the EMI Calculator anytime, anywhere as per your convenience and make your budget calculations.
- Accuracy: Using an EMI Calculator is more accurate than calculating the numbers by oneself.
- Financial Planning: As mentioned above, EMI calculations must be done even before you apply for a loan. An EMI Calculator can help you with this.