Last Updated on March 3, 2024 by Saira Farman
Prospective applicants should consider their EMI affordability and the optimum loan tenure before making a personal loan application. The easiest to determine optimum loan tenure and EMI on your personal loan is to use a personal loan EMI calculator. Here are a few additional ideas to elaborate on the advantages of using a personal loan EMI calculator before applying for a personal loan.
Table of Contents
1. For quick and accurate EMI calculations
You can determine your personal loan EMI through manual calculations. However, manual calculations can be complex for many prospective personal loan borrowers. They are also time-consuming, especially if it were to be done repeatedly for different combinations of values. Furthermore, there is always the possibility of making errors during manual calculations. Using a personal loan EMI calculator will not only help prospective loan applicants in avoiding difficult mathematical calculations but also in providing quick and accurate results.
2. For determining the estimated cost of borrowing
Besides calculating the EMI amount, personal loan EMI calculators also calculate the total amount payable, which is the sum of principal amount and interest amount. This helps borrowers in determining their cost of borrowing. However, when determining the cost of borrowing, remember that loan processing charges also contribute to the final cost of the loan. If the borrower intends to prepay/foreclose the loan, then the applicable prepayment/foreclosure charges should also be factored in when estimating the cost of borrowing. However, in such cases, borrowers should use an APR calculator to determine the overall cost of borrowing after considering the processing fees, documentation charges or other related fees and charges.
3. For determining the optimum tenure
Your loan tenure is one of the factors influencing your personal loan EMIs and the total interest cost. Longer tenure leads to lower EMIs, which increases the loan applicant’s EMI affordability. The increased EMI affordability allows borrowers to accommodate more of their planned and unplanned expenses apart from their contributions towards their important financial goals. Shorter tenure, on the other hand, increases your loan EMIs, allowing borrowers to pay off their loans faster. A longer loan tenure increases your overall interest cost and a shorter tenure reduces it. To determine optimum tenure for personal loans, prospective borrowers can use the loan EMI calculator to calculate EMIs for different sets of values and then decide based on the results.
4. For assessing your EMI affordability
Lenders usually sanction personal loans to those having their total EMIs, including EMI of the proposed personal loan, within 50-55% of their net salaries. Thus, prospective borrowers should use personal loan EMI calculators to check whether their EMIs fall within the aforementioned limit. If not, they should choose longer tenure to decrease your personal loan EMIs, which would further help in containing their EMIs within the aforementioned limit.
5. For financial planning
The EMIs for fixed rate personal loan EMIs remain constant throughout the loan period, allowing prospective borrowers to plan their finances with higher certainty. Floating rate personal loan EMIs, on the other hand, may fluctuate over the loan period based on the changes in their linked external benchmark rates. However, in this case too, prospective borrowers can use a personal loan EMI calculator to get a fair idea about their proposed EMIs and accordingly, keep a provision to accommodate the increase in the personal loan rates, if any.
After paying personal loan EMI, borrowers should have sufficient surplus to make their monthly contributions towards achieving their crucial financial goals. This is because failing to make those monthly contributions may end them with inadequate corpuses for those financial goals, which in turn may force them to avail loans for meeting those financial goals. To avoid such scenarios, prospective borrowers should always factor in their monthly contributions to crucial financial goals while choosing their optimum tenure and EMI. They should use personal loan EMI calculator to check whether they would have sufficient monthly surpluses to contribute towards their unavoidable financial goals after availing their personal loans.