EMI is the acronym for the phrase Equated or Equal Monthly Instalment, an amount that is paid by a borrower to a lender to pay back an amount loaned to him. EMIs are a popular method of paying off or retiring different types of borrowed amounts including personal loans, home loans, travel loans, vehicle loans, business loans, mortgage loans etc.
EMIs are fixed and paid over the course of time or tenure by a borrower to return a loan amount. This fixed amount accounts for a part of the interest and principal that is repaid every month, normally, by a fixed date. These fixed periodic payments are calculated by adding the accumulated interest to the principal divided by the number of months in the tenure of the loan as per a formula based on reducing principal. EMIs are quite different from variable payments where the borrower has the freedom to pay the lender an amount greater than the one specified.
EMIs also known as fixed mortgages in some countries have become a popular method of borrowing in modern days. An EMI allows a borrower to have a fixed monthly outflow allowing him/her to budget their finances better. Banks extend EMI facility on all types from personal loans, home loans to business loans and mortgage loans and even credit card payments.
Most of the private Indian institutions like the ICICI bank, HDFC bank, AXIS bank, Kotak Mahindra bank, Indus-Ind bank have popularized the concept of EMI facility on unsecured personal and business loans. These banks along India’s nationalized banks like SBI, SBH, BoB, Andhra bank, BoI, BoM, Punjab National Bank etc have long extended EMI facilities for home loans, mortgage loans. Lenders like Fullerton, Bajaj Finserv, Tata Capital, have pushed the envelope extending credit to a wider audience.
EMIs are normally calculated for a loan based on the critical factors of principal amount, rate of interest and finally the tenure or the duration of the period for loan repayment. If the principal is fixed then,
So the formula that calculates EMI will be:
Where Principal Amount is the Loan Amount, Rate of Interest is the hundredth decimal of the provided Rate of Interest further divided by 12 (months in a year) and n is the amount of Tenure (Repaying Period) in months.
So if you take a loan of 500,000 with a rate of interest of 12% and a tenure of 60 months then the EMI for the loan will amount to an EMI of 11,122. Any variations and changes in the interest rate or the tenure will similarly affect the EMI and a borrower needs to take all the scenarios into consideration before settling on a deal best suited to him/her.
Different banks might also have their own options on their lending policies and it is always a good thought to check with them first through an agent to decide the best EMI option. These options might also vary based on the kind of loan sought from a bank.
An EMI calculator is a simple and efficient tool for you to calculate your monthly liability upon taking a loan of any sort. It helps you to compare across interest rates and tenures as also the principal, if it is a negotiable amount, to find out the best out the best possible financial outcome while meeting your needs. EMI calculators have now evolved beyond this simple functions to algorithms help you to find out,
To provide an example if Vikram today wants to seek a personal loan, he can approach, let us assume, an ICICI bank, HDFC bank and AXIS bank. He can contact them and explore his eligibility as well as the interest he needs to pay for a specific principal and tenure. Now let us also assume that Vikram is flexible and has three choices of principal as well as three choices of tenure to find out a best case EMI. If so, then he will have to make 3PX3TX3B enquiries taking into account three choice scenarios for principal, tenure and banks. An EMI calculator completely skips these unnecessary steps by quickly helping check every scenario within minutes whether on a website or through an app.
Now if we look at a more complicated case where Vikram has a set salary, working in a recognized/unrecognized company, having a set of existing liabilities and other factors. He also wants to check across, let us assume, the above mentioned banks as well as IndusInd, Kotak Mahindra, Citibank, HSBC, Standard Chartered as well as lenders like Fullerton, Bajaj Finserv and Tata Capital. Now he has a scenario set stretching into dozens of options. An EMI calculator effectively removes all the confusion by presenting the best possible options across these banks as per the exact requirement of Vikram.
All in all a better and more efficient system of exploring options for obtaining a loan and choosing the best as per your requirement.
Why remember complex formulas to calculate your EMI when our EMI calculator is right here. This EMI calculator helps calculate your monthly outflow based on your agreement with your bank or lending institution which primarily is based on rate of interest and your loan term/tenure. The key inputs to the EMI calculator are,
The calculator is available for Personal Loans, Home Loans and Vehicle loan each of which is detailed below. However, in general the loan calculator can be used for any loan type like an education loan, consumer loan, etc.
This captures key inputs like the loan amount, rate of interest and the repayment tenure. Usually the Interest rate of loan is calculated on a reducing balance i.e. the interest is calculated only on the outstanding principal amount. The tenure for most banks varies from 2 years to 5 years. Changing any of the inputs will quickly help you calculate your monthly outflow.
This is very similar to a personal loan except the tenure and the rate of interest varies. For a home loan the rate of interest is usually lower and the tenure or the repayment period is longer. The interest rate is usually lower because it is a secured loan vis-à-vis a personal loan which does not require any collateral.
could be for a car loan, bike loan, truck loan, loan for a commercial vehicle, etc. In comparison to a home loan and a personal loan, there is an additional input field which is captured for a car loan/bike loan which indicates whether the EMI is paid either in advance or in arrears. To decode this further, assume that you take a Rs.5,00,000/- car loan. The Bank would probably approve 90% of the loan amount which is Rs. 4,50,000/-. For simplicity sake let us assume that you would pay Rs 15,000/- per month for a period of 3 years. In case the agreement with the bank is paying the EMI in advance, technically the actual loan amount is lesser by that EMI amount as this is an additional outflow other than the 10% that the bank does not cover. So the radio buttons to choose either EMI’s in advance or EMI’s in arrears would help get your monthly outflow.
The usage of the EMI calculator is straight forward where you feed in your key inputs either using the slider or via the text box. Altering either the slider or the input in the text box will automatically recalculate your monthly payments or EMI amount.
An EMI Pie Chart depicts the split between the Principal amount and the Interest paid. If the chart shows a high percentage for the interest amount paid, you might want to reconsider the loan as the repayment could be quite a burden. Along with this pie-chart, there is also a tabular depiction of the payment schedule which helps understand the split of every against Principal as well as Interest. You will notice that that in the initial phases of the loan tenure a significant part of the EMI goes against the interest and towards the fag end most of the EMI is adjusted against the Principal. This is one way in which the banks ensure a lock in for the complete tenure. In the table you will also notice the percentage of the loan paid at the end of every year and the balance outstanding. We have also depicted the tabular column contents using a Bar graph. The starting month of the repayment can be choose to check the outflow for the given year and the years to follow
This is a question which every customer has in his mind to ensure minimum outflow for the loan taken. The EMI offered by any bank is a direct function of the rate of Interest given that the loan amount and the repayment durations (tenure) remain the same.
The interesting answer to this question however lies in the profile of the customer. The profile of a customer could account for multiple parameters such as,
Let us consider a company Innovative Speed Technology Pvt Ltd. Now assume that this company is listed as one of the Category A companies for Axis Bank whereas is listed as a Category B company for HDFC Bank. The ROI offered by Axis for Cat A companies could be 13.5% whereas as a Cat B company of HDFC gets loans at a rate of interest of 14.5%. It is evident that in this case Axis can offer a better EMI than HDFC. However now let us consider another company Meritsoft India Technologies Pvt Ltd. This company is in the Category C of both banks but the rate of interest that HDFC offers for Category C companies is 17.5% where as Axis offers 18.5% for its set of Category C companies. This is how the company you are working for could make a difference to your EMI amount.
Some of the parameters like monthly take home salary, current EMI payments, etc might not decide the rate of interest offered by a bank or EMI amount but they definitely help in calculating the eligibility of a customer which in turn could impact your EMI. For instance some banks offer loans upto 40% of your monthly take home where as some banks stretch upto 50%. So in case your existing EMI plus the proposed loan amount exceeds this permissible limit, then you would not be eligible for a loan which in turn might imply that you lose out on a better interest rate. This is started by an example below,
|Bank||RoI||Permissible Limit||Monthly Take-Home||Current EMI||Eligibility|
So in the above case, though Bank A offers a better rate of interest, since the customer has exceed the permissible EMI outflow, the customer will have to settle for Bank B which is offering a high rate of interest. Similarly, some banks which offer better rate of interest might not offer loans to customer who is staying as a paying guest. The other parameter would be your credit score also know as your CIBIL score. The CIBIL score usually varies from 300 to 900 where 300 is considered as a very BAD CREDIT score whereas a 900 CIBIL scores is a customer which every bank would like to lend. As highlighted the above example on the EMI commitments, some banks have a higher CIBIL score cut-off which implies you might not get an offer from Bank A which might have a better rate of interest that Bank B since you do not meet the CIBIL score requirement of Bank A.
You could quickly feed in your details here to check which Bank would actually offer you the best EMI. Other important points of considerations are also the processing fees of the bank, the pre closure charges, the speed of loan disbursal etc. You can also check our EMI calculator to check how the EMI varies based on the rate of Interest offered by different banks.