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How to Calculate EMI for Personal Loan?

A loan that does not require any collateral or security as a submission comes under personal loans. A personal loan is an unsecured loan that is availed to manage unforeseen personal or business-related expenses. It is the most convenient type of loan as it can be availed digitally within a few clicks. The loans are collateral-free loans and are provided by the lenders based on the factors like credit history, employment type, income, working experience, and credit score of the borrower. Borrowers need to repay the loans at the agreed time under a certain rate of interest. EMIs (Equated Monthly Instalments) are the periodic repayments of your loan. Before you sign up for any loan, understand the lender’s EMI policy on personal loans. Also, when it comes to personal loan EMI calculation, you must know certain formulas. 

EMI Calculation

If you’re wondering how to calculate personal loan emi formula, then you must read the following points. 

  • Reduced balance rate

In this type of calculation, the interest charges depend upon the EMI’s interest component and the total amount that one needs to repay. This will reduce with every payment.  

The formula for EMI calculation is:

P x R x (1+R)^N / [(1+R)^N-1]

Here, P stands for the principal amount,

R stands for rate of interest and N in the tenure of repayment.

  • Fixed-rate of interest

In this type of EMI calculation, the interest amount does not change throughout the tenure and the lender charges the borrower an interest rate on his/her total loan. The formula for calculation of EMI, in this case, will be:

EMI = Principal + Interest/(Repayment Term in Months)

Furthermore, to calculate EMI, you can further take use EMI calculators. And what’s that? Let’s have a look. 

What is an EMI Calculator?

The personal loan EMI calculation sometimes results in a brain freeze, therefore we have an effortless way to calculate your EMI. An EMI calculator can help you calculate all your EMI very easily. It has three sliders in a box. You just have to enter your principal amount, rate of interest, tenure, and bingo! For the given time as ‘N’, an EMI calculator immediately performs the calculations and gives the resultant EMI to be paid every month. Each loan has its calculator like a car loan calculator, home loan calculator, etc.

How to use an EMI calculator?

An EMI calculator is a simple tool that uses this formula to calculate the EMI.

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

An applicant has to enter all the required which includes the rate of interest, principal amount, and the number of repayment years. 

P stands for the ‘principal amount’. This is the original amount that the lender gives the borrowers. It depends on the loan’s requirements and purpose. The higher the principal amount, the higher EMI.

R stands for ‘rate of interest’. The rate is applicable to the principal amount. It is of two types-reduced and fixed. It also depends on the type of loan taken and from which bank it is taken. One should always compare the interest rates of different lenders because rates directly affect your EMI.

N stands for ‘time’.  In other words, N is the tenure by which you need to repay the loan in installments. EMI are monthly basis. So, one year stands for 12 months and so on.

Factors affecting EMI

  • Interest rate- It is the amount that one needs to pay along with the original loan amount. One always seeks for low-interest rates so that they can pay lower EMIs.
  • Loan amount- The total amount that the borrower takes from the lender decides the interest. 
  • Tenure- The period in which the borrower needs to repay the loan. This always affects the EMI. Longer periods result in low EMI but a high rate of interest but shorter periods result in a large EMI but a low rate of interest. 

Opting for a shorter tenure is always on the safer side, increasing savings for a longer run.

What is a personal loan amortization schedule?

A reduced balance rate includes reducing the rate of interest with increased periodic timings and higher cheques of repayment. Commonly, the initial amounts charge a higher rate of interest compared to later amounts. A tabulated data of the amount along with the amount repaid towards interest and principal rate along with the respective balance for every year is called an amortization schedule.

It gives an easy and clear method to break the payments into fragments and create a roadmap to it. This helps you set your budget and plan your finances in every payment.

In Conclusion:

To avail of a personal loan, the best option is to find the right lender. Make an agreement over a certain amount with an affordable rate of interest and repayment in a fixed tenure. Do personal loan emi calculation using the above-mentioned ways, this will help you set a budget. Ask your lender whether the fixed-rate or reduced-rate technology works and then plan accordingly. Several sites and banks offer you loans with reduced EMI and interest rates easily.


Sakshi is a financial expert in MoneyWide who guides people regarding loans and financial advice.

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