A personal loan does not require the borrower to provide collateral and so it is an unsecured loan. Since these are unsecured loans, the rate of interest on these loans are believed to be quite higher than all other types of loans. The purpose or intention of a personal loan is to fund immediate financial contingencies. It could either be for business capital, marriage, education or even foreign trips, though the end use of the loan really depends on the borrower, as long as it is for a legitimate financial need.
Before you apply for a Personal Loan, you may want to get down to the basics, to shop for the best offers on personal loans in the market. Among the most popular ones is the Bank of Baroda’s Personal loan product which apart from having the pedigree of belonging to one of the oldest and largest Indian banks, comes replete with some amazing features like flexible repayment options, affordable EMIs (Equated Monthly Instalments) that sit easy on your pocket and sizable loan amount among others in the category of personal loans.
Calculating the EMI on personal loans
The EMI calculations mainly rely on three variables- the loan term or the tenure of the loan, the loan value and the rate of interest. The rate of interest is one of the aspects that comes determined by the bank.
Calculating using the PMT formula
This is a longer, tedious and round about approach to calculating the EMI on your personal loan. Here, you can run the PMT formula on Microsoft Excel to calculate the EMI, where
- PMT is your EMI,
- NPER or number of periods is the total number of payments for the loan
- PV is the loan value or the principal
- Rate is the rate of interest/12
- The formula is
- PMT (Rate, NPER, pv).
You can keep trying the formula for various combinations and then choose the one with the lowest EMI, though this is a roundabout approach that could be prone to human error.
Online EMI Calculator
Or a far easier option to calculate the affordable EMI, is using, for example, Bank of Baroda’s online personal loan EMI calculator.
Here, you will find a slider on the range of each of the three basic variables on your screen- the loan amount you are likely to need, the tenure or the repayment period of the loan that suits your finances and the rate of interest.
Now, the rate of interest is what you get from the bank, while the other two aspects, i.e., the loan amount and the tenure of the loan are the ones you can play around with here.
When you place the cursor on a particular value of the loan term, rate of interest and loan amount, the calculator throws up a monthly payment value, which is your EMI. You can move the cursor horizontally along the range provided to pick the various values.
Here’s why using a Bank of Baroda personal loan EMI calculator works.
If EMI is too high
- You can pick a longer loan term or
- You can make the loan amount smaller.
If you find the EMI is affordable or even lower than ideal then you can plan to repay faster by either
- Taking a larger loan value or
- A shorter loan term.