interest rate calculator

A personal loan interest rate calculator is an online tool that helps borrowers measure the borrowing cost as well as the instalment amount. Financial institutions offer these virtual tools on their websites to let customers understand their debt obligations. Knowing the EMI amount, they can make necessary plans to repay debts without stressing their monthly budget.

How can an interest rate calculator help borrowers?

Individuals can use the calculator in the following ways to reap the maximum benefit from a personal loan:

1. To determine a suitable tenor

The instalment amount and tenor are inversely related. When a tenor is low, individuals have to pay a high EMI amount, which may put them under financial stress. So, while borrowing, individuals need to decide what tenor will suit their financial capacity.

Borrowers can easily understand their monthly debt liabilities at a certain tenor with the help of the calculator. For this, they only need to provide necessary inputs, such as the applicable personal loan rates, preferred tenor and the loan amount in the calculator. If the instalment amount is higher, they can gradually reduce the value of the tenor. This way, they can easily find the befitting tenor.

In this regard, borrowers need to know that they can lower their EMI up to 45% by taking a flexi personal loan. This way, they do not have to necessarily increase their tenor to pay their debt obligations with convenience.

2. To compare loan offers

Loan offers extended by financial institutions include details of the credit facility, such as the maximum personal loan amount, sanctioned lending rate and the tenor. Individuals can measure the interest outgo of each of these offers using this calculator. It can significantly assist them in comparing and identifying a loan offer in which the interest outgo is minimum. This way, they can cut down their borrowing cost.

Let’s assume Lender A gives a personal loan of Rs.5 lakh at a 15% interest rate for a 3 years tenor. Lender B extends the credit amount of Rs.5 lakh, charging a 16% interest rate for a tenor of 4 years. EMI amounts for Lender A and Lender B are respectively Rs.17,333 and Rs.14,170. However, they need to pay a total interest of Rs.1,23,976 and Rs.1,80,167 if they take the loan from Lender A and Lender B, respectively. So, by taking the loan from Lender A, a borrower can save Rs.56,200. 

3. To get the amortisation schedule

This calculator also gives the amortisation schedule/table of a personal loan. The amortisation table shows the breakdown of every instalment into its interest and principal components over the entire tenor. Individuals can know how much interest and principal amounts are still left to be paid at a certain point in time.

The outstanding interest component is one of the most valuable pieces of information that can help borrowers decide whether they would get any benefit by availing of the balance transfer facility. With a loan balance transfer, existing borrowers move their loan balance to a different lender to get a lower borrowing rate. This way, they can reduce their interest outgo. Nevertheless, if the outstanding interest amount is itself little, they cannot save much even with this facility.

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4. For accurate calculation of EMI

Individuals can calculate the EMI manually as well. They need to use its mathematical formula, i.e., EMI amount = P x R x (1+R) ^ N/[(1+R) ^ (N-1)]; where P = total borrowed amount, R = interest rate and N = tenor. 

However, they can make errors in calculating the EMI manually as it involves a lengthy calculation process and numerous fractions. The interest calculator makes the process much easier. Even people with less expertise in mathematics and calculations can accurately measure the instalment amount using this digital tool. In this regard, after knowing the instalment amount, they also need to learn how to better plan their personal loan EMI repayment.

This way, utilising the interest rate calculator, they can take necessary financial decisions that can help their repayment easier.

One of the major benefits of this collateral-free loan is that borrowers get the credit amount in their savings account directly. They can use the amount in whichever way they want. In fact, the literal meaning of personal loan itself suggests that they can leverage the capital for any personal purposes, including marriage ceremonies, travels, children’s education, home renovations, etc.

Besides, individuals also need to be aware of how they can increase their chances of getting a personal loan. It will help them reduce their chances of getting a rejection on their loan requests from the lender’s end.

Apart from this, existing customers of some lending institutions also get the facility of pre-approved offers. Lenders extend these special offers on their financial products, including personal loan, business loan and credit card. Customers can substantially expedite their application process by getting these facilities. They can check their pre-approved offers by simply mentioning name and contact details.

In conclusion, individuals can easily plan their repayment by leveraging the interest rate calculator as it helps to understand their debt obligations. Using the tool, they can also compare and identify a loan offer in which the borrowing cost can be less. It only needs them to provide the values in the input boxes of the calculator appropriately.

By Anurag Rathod

Anurag Rathod, as a blogger he used to spread all about app-based business, startup solution, on-demand business tips and ideas and so on.