Prior to getting a car loan, home loan or any other loan,
calculating loan installments is a must. It gives a clear idea about how much
extra money you have to shed out each month as part of the loan installment.
Generally, people use loan interest calculator or loan installment calculators
to calculate the EMI. Reason being, these are easily available online, have a
user-friendly interface, and provide instant answers to your queries.
But before using an EMI calculator, you must understand
the loan APR concept. Banks in India not just charge the interest on loans.
When getting a loan, a borrower has to pay several kinds of non-refundable fees
including the processing fee, documentation charges, etc. when getting a loan.
Loan APR, known as a yearly percentage rate thus represents the actual cost of
the loan after considering these one-time costs associated with bowing money
from the bank. It is, therefore, an all-inclusive measure that reflects the net
effective cost of your loan on the yearly basis.
How to calculate loan
installments using EMI calculator
You can find EMI calculator at the home page of various
bank websites. After entering the loan
amount you wish to borrow, along with the interest rate (on that particular
loan), and tenure, you can determine the EMI. The process is simple and saves a
lot of time.
Other easy ways to
calculate loan installments
Using Excel - You can use Microsoft excel spreadsheet to calculate
EMI. However, the process here is a bit different than EMI calculators which
are automated and deliver results quickly by entering some basic information.
In Excel, the formula for calculating EMI is PMT (rate, nper, pv) where:-
Rate = rate of interest
nper= number of periods
pv = value of the loan or the present value
So now let’s suppose you bought a car in 2015 worth Rs
5.95 Lakh after making a down payment of 1.5 Lakh. You took the auto loan for
the rest of the amount at 12% interest rate for four years. Then your EMI would
be
=PMT (0.12/12, 4*12, 445,000) = 11,718
Let’s take another example, suppose you are paying
quarterly installments on a loan of 10 Lakhs at an annual interest rate of 10%
for 20 years. Then instead of 12, you should divide the rate by 4 and multiply
the number of years by 4 to calculate loan installment. (In case of half yearly
payment, you should divide the rate by 2 and multiply the number of years by 2
to get the result)
Using the Mathematical
Formula- For those who have limited
access to the internet or love doing simple mathematics, they can use
mathematical formula (EMI = [P x R x (1+R) ^N]/ [(1+R) ^N-1]) to calculate loan
installments.
Here, P stands for the principal or the loan amount, R
stands for the rate of interest, and N stands for a number of monthly
installments. You can use this simple formula for calculating EMIs.
The Bottom Line
Getting a loan is a common thing nowadays but to
make sure that you pay back the loan amount on time, it is good to calculate the
EMI installments in advance. Also, don’t apply for a bigger loan if you can
afford to pay back on time. Do a thorough research on the loan type. Choose
your loan term wisely (for longer loan tenure, you will be paying higher
interest whereas, for a lesser term, the EMI payments will be high with lower
interest payments).Understand your loan scheme properly before signing on the
dotted line. Remember, every late EMI payment will affect your credit score and
you may face problems while getting another loan in future. So calculate
everything before making a final decision.
