Banks offer a number of different loans to people for a range of different purposes. People normally apply for a personal loan, a car loan, a home loan, a business loan or an education loan. However, it is of utmost importance to calculate the EMI using an EMI calculator on his/her loan before borrowing. He/she needs to understand what factors influence his/her EMI value and how the cost of the EMI is actually calculated. EMI or Equated Monthly Installment is the fixed amount of money that is to be paid to the bank or lender by the borrower. This instalment is to be paid by the borrower until the entire amount of the loan is repaid. The EMI basically consists of two components: the principal amount and the interest on that amount. The interest is divided across every month of the loan repayment period. A person can use an EMI calculator to calculate the monthly instalment that he/she will have to pay.
The main factors that affect the EMI on loan are:
• Principal – This is the amount of money that you have borrowed from a bank or from a lender. This is one of the most important factors while calculating the instalment that you have to pay. This is because the interest is calculated as a percentage of the principal.
• The second factor that affects the EMI is the interest rate at which the money is loaned from the bank. You should carry out some research and understand what factors will affect the interest rates. Getting a loan at a good interest rate is essential as it will have a direct bearing on the amount of money that you have to pay to the lender every month. The interest rate on any loan depends on factors like credit score of the individual, the amount paid as initial down payment, the tenure of the loan and whether the rates are adjustable or fixed.
• The third factor is the tenure of the loan. This is basically the period for which you have taken the loan. If you want to pay smaller amounts every month, you can opt for a longer loan tenure. Similarly, a person who has availed the loan for a shorter duration of time will need to pay a higher sum of money every month.
The EMI value may change when you are paying back the loan. Some of the reasons that may cause this are if you have made partial repayment of loan, if there is a change in the rate of interest in case of a floating rate of interest or if you have chosen flexible EMIs.
The main factors that affect the EMI on loan are:
• Principal – This is the amount of money that you have borrowed from a bank or from a lender. This is one of the most important factors while calculating the instalment that you have to pay. This is because the interest is calculated as a percentage of the principal.
• The second factor that affects the EMI is the interest rate at which the money is loaned from the bank. You should carry out some research and understand what factors will affect the interest rates. Getting a loan at a good interest rate is essential as it will have a direct bearing on the amount of money that you have to pay to the lender every month. The interest rate on any loan depends on factors like credit score of the individual, the amount paid as initial down payment, the tenure of the loan and whether the rates are adjustable or fixed.
• The third factor is the tenure of the loan. This is basically the period for which you have taken the loan. If you want to pay smaller amounts every month, you can opt for a longer loan tenure. Similarly, a person who has availed the loan for a shorter duration of time will need to pay a higher sum of money every month.
The EMI value may change when you are paying back the loan. Some of the reasons that may cause this are if you have made partial repayment of loan, if there is a change in the rate of interest in case of a floating rate of interest or if you have chosen flexible EMIs.
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