How can we calculate personal loan EMI?
Managing personal finances can be challenging, especially when it comes to borrowing money. Personal loans are a popular choice for individuals who require funds for various purposes, such as debt consolidation, home renovations, or unexpected expenses. One crucial aspect to consider is the Equated Monthly Installment (EMI), which is the fixed amount payable every month towards repaying the loan.
Fortunately, with the help of a Personal loan EMI calculator, determining your personal loan EMI has become quick and hassle-free. An EMI calculator is an online tool designed to provide an accurate estimation of your monthly EMI based on the loan amount, interest rate, and tenure. Using an EMI calculator online is simple. The loan amount, interest rate, and tenure must be entered in the corresponding fields. The calculator will then compute the EMI and display the result instantly.
Let’s understand how you can calculate EMI using a Personal loan EMI calculator
There are three essential pieces of information you need to determine your personal loan EMI:
Loan amount:
The total amount you intend to borrow from the lender is known as the loan amount.
Interest Rate:
The yearly percentage rate of interest that the lender charges for the loan.
Loan Tenure:
The length of the loan, typically expressed in months.
Once you have these details, you can use the following formula to calculate your EMI:
EMI = [P x R x (1+R) ^N] / [(1+R) ^N-1]
Where:
P = Loan amount
R = Monthly interest rate (yearly interest rate divided by 12)
N = Loan tenure in months
Example:
To comprehend how your EMI is divided between principal and interest, let’s consider an example:
Suppose you take out a personal loan of $10,000 at an interest rate of 10% per annum for tenure of 36 months. The monthly interest rate would be 10% divided by 12, which equals 0.00833(approximately)
Using the formula mentioned earlier, the EMI calculation would be as follows:
EMI = [10,000 x 0.00833 x (1+0.00833)^36] / [(1+0.00833)^36-1]
≈ $322.56
Here EMI – $322.56.(approximately)
Now, let’s break down the EMI into its principal and interest components for the first few months:
Month 1:
Principal component: $106.32 (EMI – Monthly Interest)
Interest component: $216.24 (EMI – Principal)
Month 2:
Principal component: $108.08
Interest component: $214.48
Month 3:
Principal component: $109.85
Interest component: $212.71
The advantage of using an EMI calculator is that it saves time and provides accurate results. Without an EMI calculator, calculating the EMI manually can be complex and time-consuming.
The EMI calculation involves intricate mathematical formulas, including the loan amount, interest rate, and tenure. Moreover, a slight error in calculations can lead to significant discrepancies in the EMI amount. Therefore, using an EMI calculator online is highly recommended.
Using the online EMI calculator at Meru Accounting is simple. Just visit our website, input the loan amount, interest rate, and tenure, and click “Calculate.” Within seconds, you’ll receive the accurate monthly EMI amount. It’s a convenient tool that helps you make informed financial decisions quickly and effectively.
In addition to this, it also shows you a pie chart that shows the entire amount you owe. It divides the principal amount from the interest portion so that you can see how much of the total value each of them contributes.
