You cannot borrow money by choosing a good rate of interest and signing on the dotted line. Home loan, automobile loan, or personal loan–the lender has to think of how she/he will service the loan without taking a sidetrack in her/his personal finance route. For all, an EMI calculator is the optimal money planning calculator. The easy calculator assists the borrower in effective repayment planning by calculating approximate monthly Equated Monthly Instalments (EMIs).
In this tutorial above, we will get you to understand how to utilize an EMI calculator for repayment of your loan effectively, what is an EMI Calculator, and why one needs to plan his or her pre-EMI repayments well.
What is an EMI Calculator?
An EMI calculator is an online computer program whereby you can determine your monthly instalment value based on the loan amount, interest rate, and loan term. It provides you with an approximate amount of how much you are going to be paying each month, and this will enable you to plan your finance in the proper way. On conventional lines, lenders and independent websites provide free facility for such calculators.
The EMIs are computed using three significant variables:
- Loan Amount: The loan amount borrowed.
- Interest Rate: Interest rate per annum levied by the lender.
- Loan Tenure: Period of time for which the loan is availed, typically years or months.
By altering these variables on the EMI calculator, the loan borrowers can compare loans, decide upon the most suitable repayment plan, and even prepay the EMIs if permissible.
Understanding Pre-EMI and How It Will Aid Loan Planning
Pre-EMI should be materialized prior to continuing with the process of arriving at an EMI calculator. Pre-EMI refers to interest levied on the loan availed by the financier either prior to the full disbursement of the loan or even prior to the commencement of the repayment period. It is applied primarily in the case of a housing loan when the building construction is still in progress.
Pre-EMIs are less than normal EMIs and will have to be included in your payment schedule. Rather than waiting until the loan duration, the lender can make use of the calculator to understand how financially well-off he or she is by understanding the way to calculate the pre-EMI as well as upcoming EMI payments.You can easily calculate pre EMI using any online EMI calculator to understand your monthly interest burden during the construction phase.
Advantages of an EMI Calculator
An EMI calculator can make the exercise of loan planning easy and even produce some benefits:
- Correct Estimates: It gives you the precise monthly payment figures without even making a calculation or an estimate.
- Time Smart: All in one, it computes your EMIs for you so that you can have more time to select the most suitable loan product.
- Loan Comparisons: Side-by-side comparison of different lender offers on the basis of EMIs, tenure duration, and rate of interest.
- Budgeting: As it shows the repayment of interest and principal, EMI calculators assist you in budgeting an appropriate amount of budget.
- Prepayment Analysis: It informs you about how prepayments or pre-EMI repayment can affect your loan and mitigate the burden of interest.
- Easy to use: All the EMI calculators are easy and simple to use, even for users with little or no financial knowledge.
Having described what an EMI calculator is, let us now move on to how to use this money friend of ours most effectively.
Step-by-Step Guide to Using an EMI Calculator
Before you start using an EMI calculator, have the below-said details in your hand: loan amount, interest rate, and term. Now, just keep following the simple steps:
1. Select a Reputed EMI Calculator
There are some websites, mobile apps, and bank sites that offer EMI calculators. Use a well-known website or app so that you can get accurate results.
2. Enter the Loan Amount
Begin by putting in the amount you intend to borrow at first from the lender. The borrowing amount should be a portion of your actual financial requirement and do not borrow more than your actual requirement.
3. Fill in Interest Rate
Next, put in the relevant annual interest rate. Loan interest rates are commonly found on lenders’ and banks’ websites. You can even receive tailored interest rates depending on your credit score.
4. Input Loan Tenure
Input the repayment term you prefer for the loan. This may be months or years depending on the loan.
5. Verify the Output
Once you have input all your information, the EMI calculator will compute for you the monthly EMI, amount (interest and principal), and interest paid. All these outputs enable you to see the borrowing cost over the tenor.
6. Test Scenarios
One of the most at-your-fingertips advantages of using an EMI calculator is that it can be used to alter variables and view results in real time. Experiment with altering the loan period, interest rate, or amount of the loan to select the ideal payment terms that will suit your budget the best.
How to Use the EMI Calculator to Find Pre-EMI?
If you are choosing pre-EMI repayment plan, you can calculate monthly interest payment until the loan amount is disbursed using a calculator.
For pre-EMI calculation, use the following steps:
- Partial Disbursement Check: Recall the loan amount that has been disbursed under construction or prior to the repayment period.
- Interest Rate Input: Consider the rate of interest that is applicable per annum.
- Restore the Construction Period: Mark the end date or loan release against the property to determine the total pre-EMI period.
- Pre-EMI Calculations: The computer will calculate interest in the pre-EMI period and illustrate how it builds up until the last EMI cycle takes over.
In this way, you will make a choice regarding whether you would be able to manage making the pre-EMI payments along with the regular monthly payments or financially wiser to pay off the entire EMI itself as an advance.
Intelligent Loan Repayment Plans Using an EMI Calculator
1. Select the Shortest Loan Tenor Which You Can Afford
Reduce the loan period so that you will have to pay lesser interest, though EMI would increase marginally. Use an EMI calculator to calculate the optimal time duration which you can at least settle the interest burden.
2. Prepayments
If the prepayments have to be made in lump, just try them out in the calculator and see how they will lower your EMI and cost of loan. It is reasonable to try the prepayments in the first few months of the loan period so that you save the highest interest outgoes.
3. Fixed vs. Floating Interest Rates Compare
EMI calculators will also assist you in comparing fixed and floating rate situations and making a decision of that. Contrast the safety of fixed rates with the potential savings now via floating rates.
4. Compare Loan Offers
Compare different loan offers of lenders, like different rates of interest, processing fee, or offers made as an offer in promotion with the assistance of the calculator. This will help you choose the most cost-effective one.
Need to Use an EMI Calculator before Loan Disbursement
You ought to utilize an EMI calculator before disbursing your loan:
- Refrain from Over-Borrowing: EMI calculated makes you have a repayment load which will not be too costly on your wallets.
- Financial Planning For Other Aims: You can calculate what you will be spending month after month in the future through an EMI calculator and thus synchronize loan repayment along with other life goals, i.e., savings or investments.
- Facilitates Negotiation: By employing an EMI calculator to determine the EMI, you will know the affordability of different terms and are certain to negotiate better terms from banks.
Conclusion
EMI calculator is a standard facility for every borrower wishing to avail a loan. It simplifies complicated mathematics, determines the right repayment schedule, and helps lenders arrive at a decision after considering their options. Whether one is considering a loan for purchasing a fantasy house or a new car or a spending money loan, this facility guarantees that your loan instalment would be recalculated based on your budget plan without disrupting your financial plan.
Find out how to utilize the EMI calculator to your best advantage to discover pre-EMI and monthly EMIs. Through testing and learning via experimenting with various tenors and cautious planning with the budget, you can shun money catastrophes and walk on the road of debt-free life with confidence. Use this wise tool now and plan for fruitful loan repayment!
