How Does an Interest Rate Calculator Help in Planning Personal Loan Repayment?

Interest Rate Calculator
Interest Rate Calculator
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Interest Rate Calculator

While obtaining a personal loan, individuals can use a personal loan interest rate calculator to measure their installment amount. After understanding their debt liabilities, they can make proper planning for repayment. Otherwise, by avoiding such calculations, they can get unmanageable EMIs; as a result, the repayment process may become troublesome. Borrowers may end up skipping their installments of the loan, which may eventually become the lender’s non-performing asset (NPA).

  • As per the data of CRIF, the delinquency rate in the personal loan segment surged to 12.7% in India till March 2021 (1). 

What is a personal loan interest rate calculator?

A personal loan interest rate calculator, also known as a personal loan EMI calculator, is an online tool to measure monthly installments payable. Individuals can easily obtain this calculator from a lending institution’s website. 

The calculator estimates the tenor, interest rate, and borrowed loan amount to help users find the EMI. Following is the formula integrated into the algorithm of this personal loan rate of interest calculator:

Instalment amount = [P x R x (1+R) ^ N] / [{(1+R)^N}-1]

Here, P = Loan amount, R = Interest rate, and N = Repayment period

It is possible to calculate the EMI amount using pen and paper, but the process is time-consuming. The chances of human error are also undeniable. Using the calculator, borrowers can evade all these hindrances.

Ways to ensure easy repayment using a personal loan interest rate calculator

Here are the ways borrowers can utilize this calculator before taking an emergency loan:

  • Understanding a suitable tenor

Generally, a personal loan lets individuals choose a flexible repayment period of 5 years.  While determining the tenor, they must ensure that the EMI for that tenor is easily manageable. Else, they may encounter inconveniences in meeting their debt obligations. In this regard, they also need to know what happens if a borrower fails to repay the loan.

Using this calculator, individuals can easily understand which tenor will suit their repayment potential. They only need to fill in the required inputs in the calculator, such as interest rate, loan amount, and a tentative repayment period. After this, they have to adjust the tenor if the instalment amount is higher/lower than their repayment capability. Applying the permutation combination method on the input value of the tenor, they can find an ideal tenor and repay their debts conveniently.

  • Comparing lending institutions

Lenders mention the sanctioned credit amount, its interest rate, tenor, etc., in their loan offers. All these values may not be the same for different lenders. As a result, the interest outgo of the personal loan also varies. Alongside, borrowers also need to know four factors that can affect their personal loan interest rate.

While taking the credit facility, individuals need to compare those loan offers on the interest outgo parameter. This way, they understand which lending institutions will enable them to lessen their borrowing cost and enjoy a higher personal loan ROI.

Apart from these, there are several charges of personal loan to keep in mind while getting the credit facility. All these charges also significantly inflate the overall borrowing cost of a personal loan.

  • Generating the amortization table

Financial institutions also let their intending borrowers get the amortization table using the EMI calculator. From the amortization table, they can understand the breakdown of every EMI into their interest and principal components. They can be aware of the amount of outstanding interest and principal amount at a certain date within the tenor.

Further, individuals also need to understand how they can repay their debts more conveniently.

Ways to repay personal loans conveniently

Individuals can ensure an easy personal loan repayment process by following these two simple ways:

  • Going for a personal loan balance transfer

With a balance transfer facility, individuals generally move their outstanding loan balance to a different lender that provides a lower interest rate. Since the interest rate is less, they get lower EMIs on the existing debt.

  • Part-prepaying the debt

Individuals can close some of their EMIs by obtaining the part-prepayment facility. It can help them reduce their interest liabilities on those amounts. 

Furthermore, several reputed financial institutions provide their customers with pre-approved loan offers. They extend this credit offer on their financial products, including personal loan, business loan and credit card. Customers can ensure a quicker loan application process by accepting these special deals. Borrowers can check their pre-approved offers only by mentioning their names and contact details.

In conclusion, individuals must get a suitable tenor to ensure a smooth loan repayment process. Using a personal loan interest rate calculator, they can easily determine a befitting tenor, considering their financial capacity. They can also use this web-based tool to compare different loan offers and understand which lender can reduce their borrowing cost.

Read Also: Use Of Personal Loan Interest Calculator To Calculate Interest Rate

Kevin Peter