When considering taking out an Instant Credit Loan, ensuring that the Equated Monthly Installment (EMI) is affordable is paramount. The EMI, representing the monthly payment toward the loan, comprises both the principal and interest components. Given that EMIs are payable over an extended period, affordability is crucial to avoid defaulting on repayments, which could lead to additional interest charges and harm your credit score. To mitigate such risks, it’s imperative to calculate the loan EMI before committing to the loan.
Calculation of Loan EMI
Traditionally, the EMI rate is calculated using mathematical formulas, which depend on the type of interest charged on the loan. There are two common types of interest:
Flat Rate of Interest
With this method, interest is charged on the total loan amount availed. The EMI is calculated using the formula:
EMI = (Principal + Interest) / Repayment Tenure in Months
For instance, if you take a loan of ₹50,000 for 2 years at an interest rate of 10%, the calculation would be:
EMI = (50,000 + 10,000) / 24 = ₹2,500 per month
Reducing Balance Interest
Before you Apply For Small Personal Loan Online, this method, widely used, calculates interest based on the outstanding loan amount. As the loan is repaid, the outstanding amount decreases, resulting in reduced interest payable with each EMI. The formula for calculating EMI under this method is:
EMI = [P * R * (1+R)^N] / [{(1+R)^N}-1]Here, ‘P’ is the loan amount, ‘R’ is the monthly interest rate, and ‘N’ is the repayment period in months.
For example, for a ₹50,000 loan over 2 years at 10% interest, the EMI would be:EMI = [50,000 * 0.0083 * {(1.0083)^24}] / [{(1.0083)^24} – 1] ≈ ₹2,307
Why bother with complex mathematical formulas when EMI calculators are readily available?
EMI calculators are online tools that swiftly compute loan EMIs. Simply input the loan amount, tenure, and interest rate, and the Personal Loan Emi Calculator accurately determines the EMI. These tools are free and can be used multiple times to find the most affordable EMI.
Cred offers EMI calculators that make calculating loan EMIs effortless. By visiting Cred’s platform, borrowers can easily determine the most feasible EMI rate for their loan. Once the suitable EMI is identified, borrowers can proceed with loan applications confidently.
It’s advisable to calculate EMIs before availing of a loan and leverage EMI calculators to simplify the process. By ensuring affordability from the outset, borrowers can manage their finances effectively and navigate the loan repayment journey with confidence and ease.