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How to Calculate Monthly payments on your loan?

These days nothing runs without money and you never know when an emergency might occur. Whether it’s for medical reasons, a trip to another country, or a wedding, a personal loan can be an ideal solution to monetary woes. But before we get to how to calculate personal loan EMI, here are a few features and benefits of the loan.

What is a personal loan?

A personal loan is an unsecured loan that is offered by banks and financial institutions to meet your financial needs. It is considered unsecured as you needn’t offer any collateral, like your house or car, to avail of it. Normally, these loans are availed of by borrowers looking for quick money, with minimal documentation and manageable interest rates. You can apply for a personal loan whenever convenient for you and can spend it where ever you like.

A personal loan has a shorter tenure than a home loan or mortgage. Usually, these loan tenures last about one to five years, whereas a home loan can have a tenure of up to thirty years.

If you have a number of smaller loans piling up, such as credit card debt, you can use a personal loan to consolidate them into one loan. Basically, this means you can merge older debts together to make one single entity.

Before you apply for a loan, it is important to carefully analyse what’s being offered to you and completely understand it means for you financially.

  • Ensure that there are no extra hidden costs
  • Make sure you can conquer and control your debts
  • If you are consolidating your debts, make sure you understand that a personal loan is to reduce your payments and not increase them
  • If the loan won’t help make your financial situation better, then don’t avail it

Who is eligible?

When it comes to personal loans India has a number of institutions willing to lend money. These loans are available for people over the age of 21, up till the age of 65 years. Anyone who is a salaried or self-employed professional can apply for a personal loan. If you’re a salaried individual, your eligibility will be based on your age, take-home salary, and documentation. For a self-employed individual, you can avail of a personal loan based on your age, documents, and the stability of your business. Of course, this criteria differs from bank to bank.

The documents necessary to get a loan include:

  • A valid ID, age, and signature proof
  • Address proof
  • Proof of being employed currently (an offer letter or one year salary slip)
  • Proof of employment for last two years
  • Salary slips from the last two months or salary account bank statement for three months

Now that you know what you need to apply for a personal loan, you can now understand how to the loan works overall.

What is EMI?

EMI, which stands for Equated Monthly Installments, is the total you are liable to pay to the lender every month until the complete amount is paid. This number is based on the principal amount and the interest rate of the loan. In order to know how much you must pay each month, you can use an online EMI calculator.

What is an EMI calculator and how does it work?

It is vital to understand how your loan is going to work and how much you’ll have to pay for it. An EMI calculator helps you determine the monthly installments you must put aside to completely repay your loan. The personal loan EMI calculator is an ideal tool for that, as it helps you decide how much you can afford to pay, thus allowing you to base your loan request on that.

The EMI calculator is used based on three main criteria in a loan, i.e., the loan amount or principal amount, the rate of interest agreed upon, and the tenure.

This is the formula used to calculate the EMI,

E=P*r*(1+r)^n/ [(1+r)^n-1}

In the formula, E= EMI

P= the principal loan amount

R= rate of interest that is calculated on a monthly basis

N= the complete duration or tenure of the loan

How is the calculator beneficial to you

Now that you understand the importance of an EMI calculator, here are a few benefits that it has to offer.

Quick and convenient

Normally, calculating your EMI with a pen and paper or even with a normal calculator takes a while. You could spend hours trying check if your calculations are indeed right, which can be stressful. With this specialised calculator, one can formulate EMI in mere seconds. Armed with this online tool, you can also analyse and compare the offers given to you from different banks and financial institutions.


When you manually calculate your EMI, you run the risk of making a number of errors. This calculation requires thought and every time you change the tenure, interest rates, or principal amount, it might result in a heinous error. Add multiple banks into your calculations and you might end up miscalculating.

Today, several banks offer online EMI calculators, which accurately calculate your EMI.

Difference of loan

Most loans follow similar guidelines when it comes to EMI calculations, but there are slight differences between each loan. Online EMI calculators are designed keeping these differences in mind. This means that a business loan, home loan, and personal loan calculator will give you the right information based on the working of the loan.

Understand better with graphs

The human mind understands better with visual aids, which is why each calculator gives you a graphic representation of how much you must pay, usually with pie diagrams. They show you the total amount you have to pay at the end of the tenure, principal amount, the rate of interest, and processing fee.

Amortization Table

This table is absolutely essential in every loan and forms an important part of the EMI calculator. The amortization table will show you how your loan will progress over time, and how much of the principal and interest you would have paid at the end of each year during the tenure.

An EMI calculator is quick and easy to use, and could save you hours of worry. It helps you calculate and understand future possibilities in regard to your loan. Taking a loan is a financial commitment, one that stay for months or years.

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