What is the simplest method to calculate EMI? Must Know Before Applying loan!

There might be times when you find yourself stuck in financial emergencies or want to improve your standard of living. Availing for a loan is the best solution in such situations. Many financial institutions offer various types of loans at competitive rates. HDFC Bank to isn’t behind in offering customized loans at low interest rates. In fact, HDFC Bank is one of the popular choices among potential loan borrowers across the country. The bank not only offers low-interest rates but also low processing fees and flexible tenures.

However, before you apply for a loan, it is very important to be aware of its consequences. Repaying the loan is clearly the most significant aspect of taking a loan. It is a long-term commitment that can have disastrous impacts if not tending it wisely. The first step of planning a loan is calculating its EMI.

What are EMIs?

EMI or Equated Monthly Installment is the amount of money you will have to pay every month towards loan repayment throughout the tenure. It can either be a fixed amount or a variable amount based on your choice to opt for a loan with a fixed or floating interest rate respectively. It comprises of both the interest and the principal component. You are required to pay EMIs throughout the loan period or till you repay the loan amount fully along with its interest. Owing to the importance of EMI calculation, HDFC Bank provides its customers with an HDFC bank EMI calculator.

How to calculate the EMI?

The universal formula for calculating EMI is as follows:

EMI = {P x R x (1+R) n} / {(1+R) n – 1}
Where;
P is the principal amount,
R is the monthly rate of interest,
n is the repayment period or tenure

Lenders normally mention an annual rate of interest. If you want to convert the yearly rate to monthly rate, then you can do so by dividing the above formula by 12. You can enter the values against their parameters and get the EMI. However, you will not get the desired EMI in one shot. For that, you will have to keep adjusting the values and calculate the EMI all over again. Moreover, if you are using excel sheets to get the amortization schedule, then it will be very tedious to calculate them for every value, especially if you have chosen a long tenure. You can circumvent all these meticulous calculations with the help of EMI calculator.

What is an EMI calculator?

An EMI Calculator is atool that can help you determine the EMI and interest without having to do all the calculations manually. You will get almost every detail related to the loan repayment in milliseconds. It even displays the results pictorially which will help you understand the repayment schedule in a better way.

Here are the steps to calculate EMI using the HDFC bank EMI calculator:

1. Enter the values of parameters such as loan amount, interest rate, and loan tenure in their respective spaces. you will either have to enter them or just drag the pointer till you get the value.

2. You have to now either click on the submit button or the calculator will display the results automatically.

3. The results include the EMI, total interest payable and the total of payments (principal+ interest). It also shows the EMI breakup (total interest+ principal loan amount) and the amortization schedule.

4. If you want to continue calculating with a different set of values, then you can follow the same steps from step number one.

What are the advantages of using the EMI calculator?

Here are some of the most significant benefits of using the online EMI calculator.

1. Accounts for planned pre-payments

Online EMI calculators take into consideration specifically projected pre-payments that you plan on making towards your loan. Therefore, a detailed break-up includes the principal amount, interest payable, processing fee, and the prepayment fee in addition to the amount you will pay through prepayment.

2. Convenient and easily available

You can circumvent the meticulous task of calculating EMIs manually with the use of this tool. It has a simple UI which is devoid of any mathematical jargon to make the tool simple to use. The HDFC bank personal loan EMI calculator is easily available online and can be used n number of times. You can use it anywhere and at any time without having to pay for it.

3. Offers graphical interpretations

The UI cannot get any better as you can understand the loan structure straightaway by glancing through the pictorial and graphical interpretations. Very parameter concerning the loan; right from the principal outstanding, the rate of interest, the time remaining to the amount of interest can be understood in no time. These graphical representations will help you make informed decisions.

4. Provides a comprehensive amortization schedule

An EMI calculator is equipped with an amortization table that displays the loan progress over a period. It represents the periodic repayment schedule, the interest payments, your EMIs, and the outstanding after each EMI payment.

5. Provides results instantly and with 100% accuracy

The EMI calculator saves a lot of time which is a big relief. Moreover, the calculator provides instant results without any errors. Unlike human calculations which are prone to errors, these tools have an in-built algorithm which offers 100% accuracy. This further saves the time of rechecking the answers. As some calculators allow you to simply drag the pointer till you get the value, you will not even have to waste eh energy of typing it manually.

It is very important to calculate the EMI and other details related to repayment as it is a long-term financial commitment. You have to mandatorily use the EMI calculator to choose the right loan structure that you can afford. Make sure that your EMI must be less than 40% of your current income. This will ensure that you don’t get submerged with your expenses and loan debt. Only with diligent planning will you be able to manage the loan correctly.

Additional Read: Check EMI, Interest Rate and Tenure Using a Personal Loan Calculator

Author Since: Jan 17, 2019

Anoop Bansal, a professional Chartered Accountant based in the National Capital - Delhi. I have worked for the top-notch Indian and International banking firms for the past 10 years. Currently, I work at emi-calculator.loan blog and a financial consultant for different SMEs in India. Follow me on Facebook, Twitter and Linkedin for more information.

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