Saturday, 31 December 2016

Learn How EMI is Calculated

An EMI(Equated Monthly Instalment) is a fixed amount of payment you have to make when you take a loan. It contains both the principal amount as well as the interest amount.
You need to calculate EMIs for a particular loan in advance so that you can manage your future expenses accordingly.
How is an EMI calculated?
Here is the basic formula for calculating an EMI:
[P x R x (1+R)^N]/[(1+R)^N-1]
Here P is the loan amount or the Principal, R is the rate of interest per month, and N the number of instalments.
To understand the formula better, consider the following example:
Let the loan amount be Rs. 6,00,000, rate of interest be 10%, and tenure duration be 10 years (or 120 months). Comparing with the formula we have:
P= 6,00,000, R= 10/(12X100)= 0.0083, and N= 120
So, EMI = [6,00,000 X 0.0083 X(1+0.0083)120]/[(1+0.0083)120-1]
EMI= [6,00,000 X 0.0083 X 2.696] / [2.674]
EMI=  Rs. 5020.97
Calculating an EMI using the formula above can be time-consuming, especially if you have several different loans to compare. Thus, using an EMI calculator is a better solution.
What is a loan EMI Calculator?
An EMI calculator is a special tool designed specifically for calculating EMIs. It can save you a lot of time which you would otherwise have to waste by calculating the EMIs for a particular loan using a standard calculator.
How EMI Calculators are Helpful
What is first step you take when you have to take a home loan, or a car loan? Do you start applying for the same right away? Of course not. You have to do some planning first. So, you sit down and do some calculations. You decide how much amount you would need to borrow, and then take the interest rate into account to calculate the approximate EMIs. If the EMI's are high then you will need to either find a bank who can offer lower interest rate, or have to increase the tenure of the loan itself, so that EMIs becomes smaller.
Using conventional EMI calculation methods is a tedious process as it is, but when you have to adjust certain factors such as  the tenure, or the rate of interest, when it becomes an even bigger problem. An EMI calculator is the perfect solution for this problem. Most online EMI calculators are really simple to use. You can get different EMI results almost instantly when you change different factors in the formula. This makes finding the most suitable loan structure easy and quick.
Advantages of EMI calculators
There are many advantages of using EMI calculators, the best of which are as follows:
·        Different Calculators for Different Loans: One of the best things about EMI calculators is that they are specific to different types of loans. For instance, if you want a home loan then you can use a home loan EMI calculator, and if you want a personal loan you can use a personal loan EMI calculator. Since the EMIs of different types of loans have to be calculated differently, an EMI calculator can be used for the calculation of accurate EMIs.
·        Detailed Information: When you calculate EMIs using a pen and paper, or with a calculator, all you get is a final number. However, with an EMI calculator you get a lot more than that. Most EMI calculators give your results in the form of charts and tables which show exactly how much will you be paying every month, along with the reducing principal and interest amount.
·        Accuracy: Even if you are a math genius, you have admit that with pen and paper there is always a margin for errors. When you have do a lot of calculations with different interest rates, principal amounts, and loan tenures, then the risk of making an error is high. An EMI calculator, however is quite accurate.

Whether you are looking for instant personal loans, or distance education loans you have to calculate EMIs for different loan options. If you want accurate results be sure to use an EMI calculator. It will save you a lot of time. 

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