Top 6 Ways the EMI Calculator Can Help You Plan Your Finances

If the term ‘loan,’ ‘EMI,’ and financial planning send you into a frenzy, bookmark this article right away, as this is going to clear all your doubts surrounding the dreaded topics. No matter how well we earn or plan our budget, there will still always be something or the other to throw your financial planning out of the window. 

To ensure that your financial planning is as sound as your income, several banks and NBFCs offer tools as an EMI Calculator. Such tools help you pre-empt your EMI ahead of time so that you’re prepared and in a sound position at all times.

Let’s revisit or know what an EMI is and how it is relevant to the EMI calculator!

What is an EMI?

The term EMI, for the unversed, originates in a situation where there is a loan involved. A loan is an amount of money that an individual or an entity borrows from a bank or a financial institution on a promise to pay it back in equal monthly installments following specific terms and conditions. Personal loans, car loans, educational loans, housing loans, etc., are examples of such loans offered by banks and NBFCs. 

The loan term or tenure is when a borrower takes the loan and promises to repay it in a stipulated period. Therefore, the loan is repaid over that time in equated monthly installments (EMI), which is the sum of principal and accrued interest amounts. 

Generally, EMIs are paid using the reducing balance method. In this method, the interest is calculated on the outstanding loan amount and paid along with the principal amount. 

What is an EMI calculator?

Personal Loan EMI Calculator is a popular tool that helps you anticipate your expected EMI before taking a loan. All you need to do is to enter your applied loan amount, your preferred repayment tenure, and the applicable rate of interest; the tool automatically generates the EMI based on the information.

The calculator is an indispensable part of your financial planning as it helps you know the exact amount you are expected to pay each month. 

Let us understand this with an example. 

Loan Amount Loan period Rate of Interest Processing fee EMI of Loan
Rs. 5 lakhs Two years 9% 2% 22,842

 

How is EMI determined?

EMI is determined using the following formula:

E = P x R x (1+R) ^n/{(1+R) ^n-1}

Where,

E – EMI amount

P – Principal amount

R – Rate of Interest

n – Loan period (in months)

How Does an EMI Calculator Help You with Financial Planning?

EMI calculators are an effective tool in anticipating EMI while or before taking out a personal loan. It empowers the borrower to plan and manage the finances accordingly and minimize deviations. Here are brilliant ways an EMI calculator helps you ace at financial planning:

  • Convenient to use 

EMI calculators are super easy to use since they’re built that way; they simplify the calculation of anticipated EMI. You can easily find the loan EMI amount if you know basic details such as principal, interest rate, and repayment tenure. You will also learn the total loan amount to be repaid, including the interest component, by the end of the repayment period. 

  • Accuracy 

The EMI calculator calculates EMI amounts accurately if the details entered are correct. It is one of the most fool-proof financial planning methods since it efficiently eliminates the risk of human errors. 

  •  Comparison of lenders 

EMI calculator also empowers you to compare and choose from different lending institutions based on the EMI it offers. If the anticipated EMIs are calculated and compared, you can easily decide which bank or financial institution is best suited based on your needs.

  • Monthly Budget 

One can plan monthly expenses and savings or take out a second loan based on the EMI projection by the EMI calculator. Preparing a monthly budget is a child’s play once you have the list of expenses and income by your side.

  • Planning the loan amount 

Sometimes, you can be misled about the amount of loan to be taken if you don’t know the corresponding EMI. Here’s where an EMI calculator steps in as it helps you understand the estimated EMI based on the loan amount you’ve applied. You can adjust the loan amount to be applied for based on the EMI and your repayment capacity.

  • Changes in interest rates

Interest on loans can be on fixed-rate, floating-rate, or hybrid rate systems. Sometimes, during the loan tenure, interest rates may change, or the financial institution may change the method of calculating interest from one to another. These changes will impact your EMIs too. Here, you can estimate your EMI well in advance with an EMI calculator tool to be in complete control of your financial health.

Conclusion

If used wisely, the EMI calculator is a great tool that helps you through the loan process. There’s nothing more empowering than being in total charge of your finances and saving your financial planning from any unexpected turbulences.

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