Whether it’s a car, a house, or something more mundane, like a cell phone; If you’ve ever bought something a bit overpriced than the amount you can comfortably and easily afford, you must have come across the term EMI. Especially in India, people who shop online prefer to use their credit cards and opt for one of the available EMI schemes. And anyone who has chosen to go the EMI route must have thought about the extra cost they have to pay this way. What are they talking about?
We will see it here.
The equivalent monthly installment is the money you pay every month to the bank or any other type of financial institution that you have taken out a loan from, until you have not repaid the main loan amount to them. plus interest. Now, how do these big banks like HDFC, Axis, etc. do they calculate these monthly payments? A simple EMI loan calculator works by adding interest to the principal amount and dividing the sum by the total number of months you have chosen to repay the loan. From now on, your payment for each month remains the same. But, banks continue to reduce the interest component of the EMI, allowing you to repay more of the principal amount, as you make your monthly payments. You will find that the proportion of interest and principal amount changes as each month passes.
What is EMI?
The formula used by banks to calculate the EMI is:
E= [P x r x (1+r)n]/ [(1+r)n – 1]
E = NDE
P = the principal amount of the loan
r = the interest rate
n = the duration in number of months, i.e. the duration of the loan
The formula is quite simple, but to calculate very large sums of money, in case you have taken out a car loan or a home loan, you better use an EMI calculator instead. Because, this formula would otherwise turn out to be quite tedious, and the chances of making a mistake also increase this way. The alternative is to insert the correct numbers into the calculator and get your result in about a second. Along with the result which is only accurate, you will also get a payment schedule and a breakdown of the total amount to be paid.
One of the times when a person thinks of taking out a loan is when they buy a house. Both personally and financially, deciding to buy a home is a pretty big thing. It involves a lot of research on your part to know first whether you are really ready to make such a big investment or not and then where should you apply for the loan. When it comes to the home loan, you might feel a bit overwhelmed after looking at the huge amount and the long duration; but don’t worry too much. First, look at the interest rates offered by different banks and institutes. For example, you will find SBI lending money at 8.30% – 8.60%, ICICI Bank at 8.35% – 8.80%, LIC Housing at 8.35% – 8.80%, HDFC Ltd at 8.35% – 8.55%, etc., to people wishing to buy houses. And the process of making the right choice goes through the home loan EMI calculator. These are your home loan calculators ICICI, HDFC, Axis, SBI, among others, which will help you calculate the amount you will have to pay each month. Take the SBI EMI Calculator for example. You will only have to enter the total amount of your loan, the interest rate and the term. Once you’ve done that, the SBI Loan Calculator will do the rest. These are very long-term loans, the duration can also be up to 30 years.
Car Loan Calculator:
You want to buy your dream car, but you don’t have enough cash on hand right now to make such a big investment. So what are you doing? Looking for EMI options. There are different schemes by different banks, and the schemes also differ if you buy a used car instead of a new one, and so on. The only thing to keep in mind is that auto loans must be repaid, with full interest, within 5 years of borrowing. If you don’t, the lender would be within their rights to confiscate your vehicle and even auction it off to recover the balance you owe them. The use of a car loan EMI calculator therefore becomes more important; because you will have to be extremely sure that you can repay the amount without any problem.
Personal Loan Calculator:
As the name suggests, you can apply for a loan under this category for anything personal, like if you want to travel, or if you have medical bills to pay, etc. The interest rate on this loan is generally higher than the others, the reason being that it is an unsecured loan. For the same reason, the loan term for this one is comparatively shorter. Again, a personal loan EMI calculator would help you understand how much you would have to pay overall (interest included) and therefore assess whether taking out a loan would be a good option for you or not. Checking various interest rates, you will find that Axis Bank has set interest at 15.50 – 24%, Bank of Baroda at 11.5 – 16.5% and SBI at 11.35 – 15.10%, among others. You need to go through all the tariffs available in the market and choose the one that suits you best.