Lending institutions have lately introduced several financial tools dedicated for specific purposes. These tools are dedicatedly designed to aid an individual in making necessary assessment before making borrowing decisions. Some of these tools also serve right when making repayment decisions after having borrowed the advances. One such essential tool to consider is a personal loan interest calculator when individuals are planning to avail personal financing. These self-help tools have been carefully designed for easy use and bring out accurate results.
Most importantly, these tools, also known as EMI calculators, help with borrowing assessment for affordability estimation. Accordingly, the user can decide whether or not to borrow a particular amount and how longer a tenure would be suitable for its repayment.
What is a Personal Loan Interest Calculator?
A personal loan interest calculator is a dedicated financial tool. That allows you to compute the total interest payable based on the loan amount and tenure entered. It also computes the EMIs you would need to pay for the selected loan amount and tenure.
It is an accurate calculating tool and brings the result almost instantly after you have made the necessary entries. Now, It can thus save you valuable time that would have otherwise been required for manual calculation.
These calculating tools carry a simple and easy-to-understand user interface. Which can be accessed by any layman for use, and does not require any specific skill. Several reputed lending institutions and intermediaries provide these calculating tools for free. Which can be accessed on their websites with a few simple clicks.
Use of a Personal Loan Calculator
It is easy to use a personal loan calculator that requires you to make only three simple entries.
- The principal value or the loan amount you seek to avail
- The rate of interest as levied on the loan by your selected lender
- A suitable tenure for repayment of the advance, expressed in months
So, if you are availing a loan for 4 years, the tenure would go as 48 months, based on which the EMIs would be calculated.
The calculating tool uses the following formula for the computation –
EMI = P x R x (1+R)^N/[(1+R)^N-1]
In this formula, P represents the principal or the loan amount, R stands for the rate of interest levied, and N denoted the tenure in months.
Once you have entered the required values in the calculator, it immediately computes the results, which include the following.
- EMIs payable throughout the tenure
- The total loan liability payable by the tenure’s end
- Total interest accrued
Apart from these, some sophisticated personal loan interest calculators also represent a pie chart comprising the personal and interest component for the total loan liability you need to pay by the tenure’s end.
Further, some of them also compute an amortizations schedule, which is essentially a break-down of each EMIs principal and interest components. It also computes the loan outstanding at the end of each year. When you take a close look at the calculator, you can observe that the principal-interest break-up of each EMI varies. It is primarily because lenders tend to recover higher interest share in the early tenure. As the term advances and the interest is paid, a gradual increase in principal repayments is observed.
This detailed analysis of your loan repayments can be of crucial help when making important repayment decisions. For instance, it can help you choose the right time for availing the part-prepayment or foreclosure facility to maximise interest savings. The personal loan interest calculator also allows users to compare different loan amount and tenure combinations to ensure affordability based on the EMIs payable and the total interest payable.