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Loan is an amount that an entity borrows from a bank or another financial institution. The borrower agrees to repay the money, along with the interest and other finance charges, at some future point(s) in time. There are different kinds of loans available for varying financial requirements. A bank may grant a loan in secured or unsecured form. A secured loan is one where the borrower pledges an asset (e.g. a property or car) as collateral for the loan. Unsecured loans, on the other hand, can be availed without pledging a collateral.
Loans may also be classified as per the repayment period – revolving or term loans. Revolving loans are those that can be withdrawn, repaid and again redrawn. Examples of such loans include credit card loans and overdrafts. Term loans are monetary loans that are paid off in equal monthly instalments (EMIs) over a set period of time. These are generally extended for longer periods of time, ranging from a year to 30 years or so.
There are two methods by which an entity can calculate his or her loan EMIs - manually and automatically (through the use of online EMI calculators). If an applicant wants to find out the EMIs that will be payable through the former mode, then the mathematical formula that would need to be applied is:
EMI = p × r × (1 + r)n/((1 + r)n - 1) where
It is important to note that EMI payments are directly proportional to the loan amount and interest rates, and inversely proportional to the loan period. The greater the loan or interest rate, the higher will be the EMI payments and vice versa. In the case of loan tenure, the amount of total interest to be paid goes up with the increase in tenure, while EMI payments will come down.
The second method of calculating EMIs is through the online calculators available on the internet. The type of calculator will differ on the basis of the loan, i.e. personal loan calculator for personal loan EMIs, home loan calculators for home loan EMIs, etc. The information that has to be entered in these calculators are more or less the same - the principal loan amount, loan term and rate of interest. On the basis of the input provided, the calculator will show the EMIs due. Some websites may also show a graphical representation of the EMIs, with a break-up of the total payment - total principal and total interest payable.
One can find different kinds of loan calculators on the internet. Below are a few of the calculators that individuals can make use of to find the EMIs payable.
Loan tenure refers to the duration that begins from the date of disbursement of loan till the date of the last EMI payment or closure of loan. In simpler words, it is the period for which the loan amount is sanctioned. Car loans and personal loans generally tend to have shorter tenures as compared to home loans. Some financial institutions may be willing to extend the loan tenure in exchange for an extra fee or a small increase in the interest rates.
Online loan tenure calculators enable users to calculate their loan tenure by submitting certain details. Entities can make use of this tool to find their loan tenure or the number of payments required to clear off a loan, based on the loan amount, interest rate, repayment interval and payment amount.
To qualify for a loan, applicants will first have to meet the eligibility criteria listed down by the loan provider. In case of a home loan, the factors taken into consideration by a bank or other financial institution generally include the applicant’s i) income and repayment capacity, ii) age, iii) financial status, iv) credit history, v) credit score, vi) any pending debts, etc. Similarly, for a personal loan, factors taken into consideration include the applicant’s i) profession, ii) work experience, iii) age, iv) monthly income, v) credit score, etc.
There are various loan eligibility calculators available online that users can use to check the amount they may be allowed to borrow. A housing loan eligibility calculator can require individuals to input details like net monthly salary, other monthly income, current EMIs/obligations, date of birth, city and tenure. A personal loan eligibility calculator may ask for information like city, date of birth, monthly income and monthly expenses.
The loan interest rate calculator allows users to find out the interest rate that will be applicable on a loan. Here, details such as loan amount, EMI and loan tenure will have to be entered. On the basis of the data provided, the calculator will show the interest rate (in percentage format) that will be applicable. However, before availing a loan, it is advised to get the final percentage from the bank. There are certain elements that a calculator may not factor in, but have a bearing on the final interest rate. These would include the borrower’s occupation, type of loan opted, credit score and whether or not the individual is an existing customer.
What is the meaning of EMI?
An EMI, which stands for Equated Monthly Instalment, is the monthly payment that a borrower has to make towards repaying a loan. The payment will be made on a specified date every month until the loan is repaid in full. An EMI includes both the principal amount and interest amount. Before taking out a loan, it is advised that individuals make use of the EMI calculator available online to get an idea of the monthly outgo towards loan repayment.
What is a personal loan?
Personal loan is a type of unsecured loan availed by individuals from a bank or another financial institution to meet their personal needs. It is sanctioned by lenders after taking into consideration the applicant’s income level, credit history, employment history, repayment capacity, etc. The interest rates on such loans are generally higher when compared with home or car loans on account of the greater perceived risk when extending them.
How to find the EMIs payable using a personal loan calculator?
To find the EMIs due, one will need to enter the loan amount, tenure and interest rate in the personal loan calculator.
How to calculate EMIs payable without using an online loan calculator?
Entities can find out the EMIs payable on a loan by applying the following mathematical formula:
EMI = p × r × (1 + r)n/((1 + r)n - 1) where
What are the mandatory documents required for a personal loan?
The documents that need to be submitted while applying for a personal loan are:
For more information on the documents required, please refer to the website of the lending institution.
How to use an EMI calculator?
To arrive at the EMIs payable, one will need to enter the loan amount, loan tenure and interest rate in the loan calculator. Based on these details, the online tool will determine the EMIs (principal plus interest amount) that the borrower will have to pay to the lending institution.
What kinds of loan calculators are available online?
The different loan calculators available online include - personal loan calculator, home loan calculator, car loan calculator, business loan calculator and education loan calculator.
What is the purpose of finding the EMIs payable in advance?
Planning ahead helps to ensure stability in finances. Through the calculation of the EMIs payable, an entity will be able to determine whether or not he or she can actually spare that much money. Before availing a loan, it is advised that one finds out the payments that will be due through the use of an online loan calculator. There are different loan calculators for different needs, like personal loan calculator for personal loan, home loan calculator for home loan, car loan calculator for car loan, etc.
What is the loan tenure for home loans?
Usually, a home-loan repayment tenure may last anywhere from 5 years to 30 years. In most cases, loans are provided for a 20-year tenure. On the basis of the borrower's age and income, there may be an option to tweak the repayment tenure. Another way to bring down the tenure is by prepaying the loan.
Are the terms of a loan negotiable?
In most cases, yes. If an individual is taking out a loan from a bank that he or she already holds an account with, like salary or savings account, then there may be room to ask for better terms. As the bank already has the necessary information about the applicant’s earnings and financial capability, it may agree to the requests placed by the applicant. However, if one is going to a new lending institution, it is recommended to go prepared with credit score, salary slips and bank statements. The applicant should carry documents that prove his or her financially stability, which will in turn allow the user to negotiate better terms with the lender.
What is the penalty applicable if an EMI payment is missed?
When an individual is irregular with EMI payments, then a penalty charge may be levied by the lending institution. This charge is usually levied at the rate of 1-2% of the borrower's EMI amount. The penalty applicable will be mentioned in the loan contract signed by the borrower while availing the loan. It must be noted that if an individual repeatedly defaults on payments every month, then the rate of interest for penalty charge may be increased.