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A definitive guide on how lenders calculate your interest on personal loans

Personal loans are one of the most popular loans thanks to its easy availability.The quick processing of a personal loan is also why many people find it simpler. A personal loan is an unsecured loan where you don’t need any collateral or security against the loan. However, the lender has to deal with an increased risk factor because of that. Therefore, they use the online personal loan calculator to calculate your interest on personal loans. To know more about the personal loan calculator, click here.

How Does a Personal Loan Calculator Work?

Easy Monthly Installment or EMI needs to be paid by you whenever you take a personal loan. Lenders use the personal loan calculator to calculate the EMI and interest rate you need to pay. In order to do that, they provide these three details on the personal loan calculator – Principal Loan Amount, which is the amount of borrowed money, Loan Tenure, which is the time period for which the loan is sanctioned, and Interest Rate, which is the rate of interest levied on the principal loan amount.

Once lenders put these three parameters on the personal loan calculator, it shows the EMI amount that needs to be paid each month by you. Here is the formula through which lenders calculate the EMI:

Personal Loan EMI = [P* R* (1+R)^N]/ [(1+R)^N-1]

Here,

P = Principal Loan amount

R = Monthly interest rate charged on the principal

N = Number of instalments to be paid each month

EMI is inversely proportional to the loan tenure. Therefore, the EMI will decrease when you pay the loan amount over a longer period of time, even though the interest amount will increase for the same.

Advantages of using a Personal Loan Calculator:

There are three main advantages of using a personal loan calculator. They are as follows:

Less Time-consuming: The personal loan calculator can calculate the EMIs you need to pay in almost no time. All you need to is enter the details and the personal loan calculator will do the rest. In addition to that, you can do several calculations in a matter of minutes with the help of the personal loan calculator.

Accurate Calculations: Calculating EMIs can be a daunting task if you do it manually. A mistake will lead to incorrect information. This, in turn, can lead to various financial troubles. On the other hand, if you use a personal loan calculator, it will not only save your time but also help you stay on track with your loan repayment by giving you an accurate EMI amount.

Budget Planner: If you want to take a personal loan, planning your budget is one of the key factors. It will make sure your monthly expenses are well-maintained. The personal loan calculator will help you with that. You can check the details regarding your loans instantaneously. This, in turn, will help you plan your budget in a more organized way.

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