What is EMI or 'Equated Monthly Instalment?
A loan is a financial agreement made between two parties that is a lender and a borrower. Under this agreement, the lender lends a specific amount of money to the borrower with an intention that the amount that is borrowed is returned back with an interest as monthly instalments over a predetermined period (of up to 5 years) by the borrower of the loan.
An equated monthly instalment (EMI) is a fixed payment amount that is made by a borrower to a lender on a specified date for each calendar month. EMIs are used to pay off both interest and the principal amount each month so that over a specified period of years, the loan is paid off completely. In case of, Home Loans, the borrower make fixed periodic payments to the lender over the period of several years (of up to 30 years) with the aim of returning the complete loan.
The EMI calculator is the easiest way to determine your monthly payouts for a period and balance your budget as per the plan. Everyone needs a loan at some point in time in their life whether for buying a car or a house, or funding their child's education or consolidating debts and so on. Thus, loans have become a vital part of everyone's life in today's time. Loans can be taken for a number of purposes, but the key components on loans are always the same that is - loan amount, loan tenure, and the interest rate.
Calculating the EMI
The EMI can be calculated using the flat rate or the reducing balance method.
The EMI flat rate formula is calculated by totaling the principal loan amount and the interest on the principal amount. The sum is divided by the number of months within which the loan has to be repaid.
The EMI for reducing balance method is calculated using the following formula: (P x I) x ((1 + r)n)/ (t x ((1 + r)n)- 1)
P is equal to the borrowed principal amount, I is the annual interest rate, r is periodic monthly interest rate, n is the total number of monthly payments and t is the number of months in a year.
Calculating Your Loan EMIs Using Excel
EMIs can also be calculated using the Excel spreadsheet. In Excel, you need to use the function PMT for calculating EMIs.
The formula, which calculates EMI in excel sheet, uses the following syntax: PMT (rate, nper, pv).
The variables in the above formula are:
Rate - Interest rate for the loan
nper - the total number of payments for the loan
pv - Present value/principal
Calculating Your Loan EMIs Using an EMI Calculator
Calculating EMIs using the formula is not an easy task and involves complicated calculations hence opting for an EMI calculator is a better option as it helps to determine the EMIs within seconds of your input.
Here, the borrower just needs to enter the variables of the loan such as the principal amount, the tenure or the specified period and interest rate, then it instantly calculates the result which is the EMI. Calculating EMI using the online EMI calculator is simple and you get to know your loan EMI within no time.
By using an EMI calculator, you can find out your loan repayment requirement and then plan your monthly budget systematically. You have the flexibility to decide the amount that you are comfortable to pay off every month and also the duration for which you wish to make the payments depending upon your financial stability.
Although each and every EMI calculator works on the same three variables, you can use the EMI calculator, which caters to your requirement.
How Do EMI Calculators Work?
EMIs can be calculated by using EMI calculators available online on websites like MyMoneyMantra. EMI calculators require certain parameters to be input by the user for determining the loan EMIs, which include:
Loan Amount The actual amount borrowed as a loan for purchasing the house, car or any other requirement is the principal amount. It depends upon a number of factors related to the applicant and the cost of the purchase. The interest is applied on the principal loan amount. The higher the amount of loan, higher is the EMI, which you will pay monthly.
Tenure of the Loan The total time period of repayment of the loan is the tenure of the loan. Loan tenures vary depending on the kind of loan, the loan principal and also the lender you are borrowing the loan from. For instance, Personal Loans have shorter tenure up to a maximum period of 5 years whereas Home Loans are longer ones which can go up to 20-30 years. The longer the tenure of the loan, the more will be the interest that you will have to pay along with higher EMIs.
Interest Rate The rate at which the interest is charged on the amount lent to the borrower. It is best to compare the interest rates that are offered by different lenders for a particular loan. The EMI also varies according to the type of interest rate charged on the loan whether it is fixed, floating, or hybrid.
Types of EMI Calculators
EMI Calculators can be of different types depending upon the loan that you choose to take. You can find various EMI calculators for different loans on MyMoneyMantra and use them as per your requirement and need.
Home Loan EMI Calculator
The Home Loan EMI calculator is used to find out the EMIs that you pay in case of a Home Loan. Buying a home is a very important decision both financially and personally and taking a Home Loan requires a high degree of planning and rigorous research especially because of the Home Loan's long tenure and a high loan principal amount.
MyMoneyMantra's Home Loan EMI calculator has been designed in such a way that it is user-friendly and also helps individuals and families calculate their Home Loan EMIs instantly within a minute's time. Home Loans are usually sanctioned based on the property cost and the borrower's capacity for loan repayment. They are long-term loans which can be repaid up to a maximum of 30 years of period. On the basis of your personal requirements and eligibility criteria, you can input the loan amount, tenure or the period and the interest rate so that you calculate your Home Loan EMI accurately.
Personal Loan EMI Calculator
Personal Loans are "all-purpose loans", which means that you can get a Personal Loan for any purpose such as funding your medical expenses or travel or anything else. It is an unsecured loan wherein the interest rates are higher than usual and the duration of repayment is shorter. The Personal Loan EMI calculator is suitable to assess your repayment capabilities and calculate a loan amount, which can be paid by easily. It works on the same variables as other EMI calculators like the loan amount, tenure and interest rate.
Car Loan EMI Calculator
Car Loan EMI calculator helps you to know your Car Loan EMI payments based on the loan amount, tenure of the loan and interest rates. Lenders offer various schemes for buying cars, both new and old ones. Buying the car you wish requires you to make a substantial investment, which can be met by taking a Car Loan. However, you should keep in mind that the Car Loan amount that is taken has to be paid back with an interest amount within a stipulated period of time, which is up to 5 years. If you are not able to pay back the amount borrowed, then the lender can take away your vehicle and auction it off in order to recover the balance amount that is outstanding. Therefore, it is always best to use the Car Loan EMI calculator to find out an EMI amount, which you are comfortable paying back without causing much of a financial crunch.
Education Loan EMI Calculator
The cost of education has reached the skies and thus affording a decent education is becoming a difficult task for the parents. Education Loan helps to fund the cost of education of a student within the country and abroad with specific repayments. The repayment in case of Education Loan does not start immediately but after a particular cooling period usually 6 months after course completion or after the student gets a job whichever is earlier.
Loan Against Property EMI Calculator
Loan Against Property is a secured loan, which can be availed against any property that is owned by you whether it is residential, commercial or any land that has to be mortgaged with the lender. You can use the EMI calculator to calculate the EMI for the loan so that your repayment amount is planned systematically and you do not end up straining yourself financially. Considering it is a secured loan, the property, which you pledge as collateral can be seized by the lender in order to make up for the difference in case you are not able to keep track with your EMI repayment schedule.
Benefits of EMI Calculator
The main benefit of an EMI calculator is that the borrowers get to know how much money they will need to pay each month so that they do not feel the financial crunch. The loan EMI calculator helps the borrower to decide on an EMI amount, which can be repaid over the tenure of the loan with comfort.
- Anytime access
The EMI calculator can be accessed anytime and anywhere and you can use the calculator any number of times. You need not visit the bank or get involved in finding out the monthly payouts by doing complex calculations; instead you can just use the EMI calculator online.
- Accurate results
Calculating the EMI payouts manually is a tedious and a confusing task with an opportunity to make errors. When you do the same for different banks, the chances of errors increase and hence it is best to use the online EMI calculator, which helps you in making error-free calculations within no time.
- Saves you from time-consuming and complex calculations
When you calculate the EMIs at different interest rates by different banks, it needs to be done with complex calculations, which might lead to confusion, and also you might get erroneous results. It is a very time consuming task, as you need to repeat the math again and again. However, with online EMI tool, you can save your time and complete all the lengthy and complex calculations in seconds.
- Aids the financial planning process
Using an EMI calculator helps you plan your finances in advance of taking the loan so that your monthly budget is not disturbed. You can also change the loan parameters to reach the most suitable EMI as per your needs.
- You can use an online EMI calculator for every loan
EMI calculators have made loan calculations very simple and timely as you can use a different calculator for every type of loan. Although the variants for every loan are the same but there are instances where you will feel the need to use loan specific EMI calculators.
How to Use MyMoneyMantra's Loan EMI Calculator
- Log on to the MyMoneyMantra's EMI calculator page which is listed under the financial tools tab.
- Now, you have the option to use different EMI calculators like EMI Calculator, Balance Transfer Calculator, Part Pre-payment Amount Calculator, and Full Pre-payment Amount Calculator.
- Select the EMI calculator tab.
- Now you will reach a page where you need to enter the loan parameters like loan amount, interest rate, and loan tenure. Enter the details as mentioned.
- As you enter the three loan parameters, you instantly get your monthly payable EMI amount.
- Now you can change the parameters and try different combinations to get your best EMI.
- Next to completion of the EMI calculation, you have the option to check your loan eligibility, get the best loan quotes based on your eligibility and requirements and apply for the loan online through MyMoneyMantra.
Factors Affecting Loan EMI
EMIs are often not fixed over the loan period and it can change due to various factors. However, these factors do not remain the same and change over time with fluctuating EMI payouts. The factors that can affect the monthly EMI amount include the following:
- Change in the interest rate during the loan tenure
Loans can be lent at fixed, floating, or hybrid interest rates. Fixed interest rate means the rate is the same throughout the tenure of the loan and the loan repayment made is fixed. In floating interest rate loans, the interest rates fluctuate many times during the tenure of the loan. In hybrid interest rate loans, a combined interest rate of fixed and floating rate is applied. Initially, the fixed interest rate is applied and then the interest rate becomes floating. The rate of interest on various loans changes as and when the Reserve Bank of India regulates its standard rates of interest.
- Prepayment of the Loan Amount
Prepayment of the loan amount can be done for most of the loans and banks allow you to prepay the loan by making lump sum payments, however, there might be a penalty associated with the prepayment. Usually, prepayment of loan can be done after a specific time under the terms and conditions given by the lender. Prepayment of the loan can only be done on payment of prepayment charges, which are levied on the outstanding principal amount. This is usually 1% to 3% of the outstanding amount and some lenders waive this prepayment fee subject to certain terms and conditions.
- Change in Loan Tenure
Changes in the period of loan repayment can impact your EMIs; so take an informed decision after considering all the factors. If you work out with your loan provider for a new loan term or change over to a new loan period with a new loan provider, then your EMIs may increase or decrease accordingly.
- Loans with Flexible Repayment Options
Some lenders offer a flexible loan repayment options that feature varying EMIs. Step-up loans have lower EMIs initially and then the EMI payable increases as you progress along the period of the loan. Step-down loans have higher EMIs at the start, which get reduced at a later stage. Payment of EMIs is an integral part of a loan and you take a lot of effort to plan when determining the EMI amount that you are comfortable to pay back monthly. So make sure you assess your EMIs using a loan EMI calculator before you take the final call on your loan.
EMI Calculator FAQs
- How can I make the best choice when using an EMI calculator?
EMI calculator is a very handy and useful tool as it not only determines the loan EMI but also offers a list of best loan offers on the basis of your eligibility and requirements. You can compare the list of loans against set parameters and make a thoughtful choice.
- Can I use the same EMI calculator for home, car and Personal Loans?
Most of the times, the Home Loan EMI calculator, car loan EMI calculator, and Personal Loan EMI calculator work based on the same three parameters such as loan amount, loan tenure, and interest rate. The main difference between the calculators is the maximum principal amount that is allowed as input and hence this restriction makes one to choose the EMI calculator based on the type of loan.
- Do EMI calculators give more accurate results than excel sheets?
Accurate results can be calculated from both excel sheets as well as online EMI calculator. The difference being that online calculators save you from the difficulty of doing lengthy and tedious calculations and tabulate your EMI within no time. But, an excel sheet calculator needs more time and effort. Hence, online calculators have become the preferred choice.
- What is a loan amortization schedule?
Loan amortization is a systematic arrangement of the loan payment process. Loan amortization table or schedule gives you clarity of the amounts paid towards the parameters over the loan tenure. Hence, understanding the amortization schedule is very vital to get a better picture about how your loan is repaid.
- Is the EMI calculated by the EMI calculator the same as the actual bank EMI?
EMI calculated by the EMI calculator tool is based upon what inputs you give online. Bank EMIs might be slightly different from that of the EMI calculator. If the bank does not grant the exact loan amount for the specific period and the interest rate you used as input, then EMI that you will have to pay may differ slightly from the EMI that you had calculated using the EMI calculator tool online.