EMI Calculations – Possibilities of Making Mistakes

When looking for a personal loan, the first thing to check is the Equated Monthly Installment (EMI) that you have to pay every month. Depending on the amount you have borrowed or are planning to borrow, you can make EMI calculations to come up with the best match of tenure, interest rate and processing fee that you are comfortable with.

A personal loan EMI calculator is a very handy tool if you know how to use it. You should also try to understand the underlying principles of its working so that your EMI calculations are air-tight and are devoid of any errors.

Some of the common mistakes people make when using an EMI calculator for personal loan calculations are:

  • Not understanding the results

The EMI amounts that come up when you make relevant calculations through a personal loan EMI calculator are indicative of the actual values.

Out of the four major personal loan divisions – amount, tenure, rate and fees – the interest rates and processing fee values that you find on the internet are indicative values and not absolute values. The rate of interest varies from applicant-to-applicant depending on their income, credit history etc. As such, there is a good probability of the final EMI value varying significantly from your calculations.

  • Not understanding the nature of  interest rates

As described earlier, interest rates are highly dynamic figures. Do not assume the interest rate to be constant when entering different values of amount and tenure, as more amount may attract different interest rate as defined by the bank at an earlier time. This can in turn result in you holding a personal loan that you can’t possibly repay.

personal loan emi calculators

personal loan emi calculator

  • Entering unrealistic loan tenures

Personal loan tenures generally range from 12 months to 60 months. When entering a loan tenure, you should consider the unexpected nature of the future. You may change jobs, or you may have landed an amazing opportunity overseas – a previously unpaid loan at such important junctions of your life may adversely impact future decisions. You may be interested in buying a new home or a car, but it will be almost impossible to do so without paying previous personal loan dues.

A way to get out of old loans is by paying a lump sum to clear all dues, after a specified amount of time has passed. Pre-payment or foreclosure is allowed in most of the personal loans provided by banks in India. But to opt for pre-payment, you will have to pay an additional charge to the bank, which is again a bad option.

If you can minimize mistakes in calculating personal loan EMI using EMI calculator, you will have a better view of your situation and can avoid contingencies.

A personal loan EMI calculator is still the perfect tool in your hand when approaching a bank for personal loan. Some banks in India still use pen-and-paper based calculation methods to find EMI values, which may be prone to human mistakes. To ensure that you are not paying over what you are entitled to pay, it is advisable to make your own calculations before applying for the personal loan.