EMI Calculator for Personal Loans in India

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11 Facts you should know about EMI and Term Loans

1) What Is a Personal Loan?

Banks/NBFCs offer a variety of loans, many of which are for specific purposes. For instance, for buying a home or a car a person would need to apply for a home loan or a car loan respectively. A personal loan, however, could be used for anything, and hence the name. You could use a personal loan for investing in a new business, or for financing your wedding. Sometimes people also use a personal loan to pay off the debts from other loans in case the personal loan has a lower interest rate.

There are two types of personal loans-

Secured Personal Loans-

Secured personal loans are the ones that are protected by collateral. For instance, you can offer your house or car as collateral for a secured personal loan. When this happens your bank/NBFC will keep the deed or the title of the collateral asset until the loan has matured. This kind of arrangement provides a certain sense of security to the bank/NBFC.

Unsecured Personal Loans-

Credit cards and education loans are some of the examples of unsecured personal loans because you usually don’t have to provide collateral when applying for them. Normally, these types of loans have a higher interest rate in comparison to secured loans for the obvious reason that the bank/NBFC has no collateral to get their money from in case the customer defaults.

2) What Is a Term Loan?

A term loan is a loan that has a fixed interest rate and maturity date. For example- if you want to establish a business, you can get a term loan from your bank/NBFC. You start with applying for the loan. If your application is approved, you can then negotiate the interest rate with the bank/NBFC and settle for value. You also have to agree to a fixed number of instalments over a period of time (which will also be fixed). Most term loans mature within 10 years.

Terms loans are quite popular as they are financially well-stable, and offer good security to the lender and the loanees due to its “fixed” nature. Both the parties have a clear idea of the amount of the EMIs, the frequency of the EMI, and the duration of the loan. Plus, transparency is high, and the pressure is low.

3) What Is an EMI?

EMI stands for Equated Monthly Instalment. When you obtain a loan from a bank/NBFC, you usually pay it back in small monthly instalments over a period of time of time. These installments are called EMIs. In most cases, your EMI will consist of both the principal amount as well as interest on the loan itself. The principle amount and interest on it are added, and divided by the number of months of the tenure. The resulting amount serves as your monthly instalment or EMI.

Usually the EMI you have to pay for a loan stays the same throughout the tenure. However, in some cases, it could change. Following are the three common reasons for your EMI to change during the tenure –

  1. Change in the Rate of Interest

    If your loan has fixed interest rate then your EMIs will stay the same throughout the tenure. However, if your loan has a floating interest rate and the bank/NBFC changes the rate of interest on the loans in future then the EMI will also change. If the new ROI (rate of interest) is higher than current ROI, your EMI will increase in amount. On the other hand, if the new ROI is lower than current ROI, your EMI will also decrease in amount.

  2. Prepayment of Loan

    If you decide to prepay your loan then also your EMI will change. This is because by prepaying you will be reducing the principal amount, and the new ROI will be based on this amount. With a new ROI, the EMI will change accordingly.

  3. Progressive EMIs

    Some banks/NBFCs offer their customers an option to repay a loan through progressive EMIs. In this arrangement, you will pay smaller EMIs in the initial period of your tenure and larger EMIs at a later stage. In this way, your tenure will become smaller, and you will also save a lot of money on the interest.

Progressive EMI arrangement is generally opted by those who have just started their career and can pay greater EMIs as they progress through their career and receive higher salaries gradually.

4) How is EMI Calculated

The formula for calculating EMI is [P x R x (1+R)^N]/[(1+R)^N-1]

Here P is the loan amount or Principal and R is the rate of interest per month. [Here is how you can calculate rate per month – if the rate of interest per annum is 11%, the per month rate would be 11/(12 x 100)], and N is the number of instalments.

Here is an example to help you understand how exactly an EMI is calculated:

Let the loan amount be Rs. 5,00,000, rate of interest be 10%, and tenure duration be 10 years (or 120 months). Comparing with the formula we have:

P= 5,00,000, R= 10/(12X100)= 0.0083, and N= 120

So, EMI = [5,00,000 X 0.0083 X(1+0.0083)120]/[(1+0.0083)120-1]

EMI= [5,00,000 X 0.0083 X 2.696] / [2.674]

EMI= Rs. 4184.14

5) Why Go for an EMI Loan (Term Loan)?

Term loans are an excellent option for those who can’t afford significant investments such as homes and automobiles. There are various advantages of a term loan or EMI loan-

  • Affordability

    Real estate prices today are higher than ever. For a majority of people, it is almost impossible to pay for a home or even an automobile in a lump sum payment. This is where an EMI loan comes to rescue. An EMI loan allows you to afford a house or a car easily by allowing you to pay for the same in smaller amounts on a monthly basis.

  • Better Financial Control

    An EMI loan is easy on your wallet. Knowing that you only have to pay minimal payments every month, you can manage your other expenses easily. In other words- you can afford big investments without throwing yourself into a financial crisis.

  • Flexibility

    Not only EMI loans allow you to afford expensive assets, but they also give you the freedom of choosing the number of instalments that you are comfortable with. Thus, depending on your financial situation, you can either choose more or less number of installments.

6) What is an EMI Calculator?

Calculating the EMI for any loan is seldom easy for someone. Plus, there is always a good chance of error as there are many different parameters involved. An EMI calculator is a tool designed specifically for calculating accurate EMIs for a particular loan. To calculate the EMI of a particular loan all you have to do is enter the required values in the calculator interface and in the blink of an eye you can get the results.

7) How to Use an EMI Calculator?

Using an EMI calculator is super easy, and you can use it for calculating EMI of all kinds of loans such as home loan, personal loan, or even education loan since the formula is the same for all. To calculate the EMI of a particular loan simply enter the following values into the calculator-

  • Principal loan amount
  • Duration of the loan
  • Rate of interest

Once you have provided these values you will get the result (the EMI) instantly.

8) Features and Benefits of EMI Calculators

An EMI calculator can be incredibly beneficial for any loan applicant. After all, it has many advantages –

i) Time-Saving

Crunching numbers for finding the EMI of a loan, even with the use of a calculator can be highly time-consuming. If you are comparing many different loan options, then calculating EMIs of each of them could take forever. An EMI calculator makes the task really simple and easy.

ii) Accurate

When it comes to finance, even a small mistake could be a disaster. To compare different loans on the basis of their EMIs, you have to know the precise values to make the right decision. By choosing to calculate without an EMI calculator, you will only put your calculations at a risk. No matter how careful you are, the possibility of error will always be there.

EMI calculators have become quite popular today, and unless you simply love doing calculations, you would want to use one when you want to find out the EMIs of a particular loan.

9) What is CIBIL?

CIBIL (Credit Information Bureau of India Limited) is the chief governing authority for credit regulation and credit standardization in India. If you ever took a loan or used a credit card then there is a report with your name on it in the archives maintained by CIBIL. You may not even be aware of it but it is there, and it will affect your odds when you will apply for a loan or credit card in the future.

CIBIL assesses the credit management behaviour of all citizens who have a credit history and assigns a score based on the same. There are various factors that affect your CIBIL score. For instance, if you are irregular with your credit card payments and EMIs or spent too much credit provided to you on your credit card then your CIBIL score will take damage. On the other hand, if you pay your EMIs on time and never miss your payments you can have a decent score. Having more than one kind of credit (credit cards+ loans) can also improve your score.

CIBIL rating has become incredibly significant lately. Since the number of loan applicants is increasing at an exponential rate, banks/NBFCs have become prudent. To make sound decisions they rely heavily on the credit score of applicants. In fact, in some cases you need a good score even to get a job. For instance, SBI recently barred the applicants who had defaulted on a loan from applying for the jobs rolled out by them.

It may come as a surprise but your CIBIL rating could indirectly affect your EMIs. This is because if you have a good score then when you negotiate the interest rate with your bank/NBFC you will have the upper hand. With a promising credit history to back you up and a high credit score, you can easily convince your bank/NBFC to offer you a low-interest rate. It is best if your score is higher than 700. If your score is low and you are in no hurry to get the loan, then you can spend some time improving your score first. With this, not only will you have a better chance of application approval, but you will also be able to save a lot of money in the long run on the interest.

10) Why an EMI Default Can Damage Your Chances of Future Loans

Missing a single EMI is bad for your credit score, and in case you default, your report will receive a mark of the same which will ensure that no future lender looks twice at your loan application. EMI default is probably the most terrible thing that can happen to your financial credibility. Every single aspect of an individual’s loans and credit cards boils down to one thing- CIBIL score. This single parameter is what decides your fate loan-wise. So you would want to take every measure possible to keep your score high and intact.

People often miss EMIs, and that’s alright. If you manage to pay the EMI within 90 days past the due date, your score will be minimally affected. Yes, the damage will take place, but it can be fixed by becoming regular with future payments. However, if you are too late in paying your EMI, you will default, and that is not something you would ever want to happen. EMI default closes majority of doors of loan lenders, if not all. You can’t get your loan application approved from a bank with a report that says you are a defaulter. Even if you do manage to get your foot in the door, the interest rates that you are likely to get will only disappoint you.

While there are several ways to remove the “default” status from your CIBIL report, it is never easy, and you usually have to spend a considerable amount of time and energy. It is way better to prevent the situation in the first place rather than deal with it.

11) What Happens When You Default an EMI?

Your bank/NBFC will declare you a defaulter if you repeatedly fail to pay the EMIs of a loan on time. If this happens, you can’t help but face a variety of troubles and nuisances from the bank/NBFC. The severity of these nuisances varies from bank/NBFC to bank/NBFC since all of them follow a different routine for handling such situations. However, in all likelihood, your bank/NBFC will try its best to get the money from you by simply calling you or contacting you repeatedly. If despite numerous attempts you don’t pay the pending amount the bank/NBFC can send you a court notice under section 58 of Negotiable Instrument Act, which will make you a punishable offender. From here onwards things become way trickier and complicated. It is best to handle the situation before it reaches this point.

Other than all the troubles that you have to go through these are some of the things that happen when you default-

  1. CIBIL Score Impact

    The most significant and instant impact of your loan defaulting is reflected in your CIBIL report. Banks/NBFCs rarely hesitate in sending the details of your behaviour to CIBIL which in turn mentions it in your report which is available for every single future lender to see. Persuading your bank/NBFC for removing the “default” status from your report is a whole other story, even if you pay the pending amount in full later. Besides, reversing the damage could take months and is certainly no bed of roses.

  2. Penalties and Fines

    Though the exact method and amount vary from bank/NBFC to bank/NBFC you invariably have to pay huge fines for defaulting on a loan.