# The 3 Easy Steps to Calculate EMI on Personal Loan?

01 नवम्बर 2019

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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

• 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.

### Related Articles

###### Know more about prepayment of a home loan!

If you are looking to reduce your debt burden, you should consider prepayment of home loan. As soon as your finances improve, you can choose to finish your home loan, either in part or in full. If you repay your home loan completely or in part before the scheduled tenure, it is called prepayment of home loan.
While most banks allow for a prepayment of home loan, some banks may charge a small fee for pre closure. It is, therefore, advisable to consider all the pros and cons of foreclosure before taking the plunge.
Who is eligible for a prepayment of home loan?
All home loan borrowers are eligible for pre closure, as long as their bank offers this facility. You can ensure that you have the option of prepayment of home loan at the time of taking the loan.
Most banks do not encourage prepayment as it causes a loss to them. When you decide to pay off a loan ahead of schedule, banks incur additional costs for rerouting the funds through credit channel. Therefore, banks may impose a fine for preclosing your loan.
That said, you are well within your rights to foreclose your loan&mdash;in part or full&mdash;if it gives you long-term benefit. If, even after paying the fine, you are saving on the interest you pay every month, it is worth foreclosing the loan.
How to do prepayment of home loan?
There are many ways in which you can prepay your home loan. You can either go all out and completely repay the loan ahead of schedule or you can pay off a part of your debt. You can also work on a combination of the two.

Start small, go up gradually: One way of prepaying your home loan is starting with a small prepayment in the beginning of the loan and to increase this amount every year at a constant rate. You can do so by saving through the year and spending your savings on prepayment.
Fixed prepayment: You can do this by prepaying a fixed amount towards your principal every year. This you have to do over and above your EMI payments. Plan your expenses through the year and make a fixed saving every year. Spend this saving on prepayment to reduce principal.
Higher EMI: Another way of reducing your principal is by paying more than your calculated EMI. Every month make a payment that is slightly higher than your EMI. This goes a long way in reducing your debt burden.
Full repayment: If your finances have improved tremendously or if you have been able to mobilise a large sum of money, you can completely pay off your loan ahead of your tenure. You may, however, have to pay a fine for full prepayment of home loan.

Home loan prepayment rules
The Reserve Bank of India (RBI), from time to time, revises the rules it has set for &ldquo;Levy of foreclosure charges/ pre-payment penalty on Floating Rate Loans&rdquo;. It specifies the conditions in which banks and housing finance corporations (HFCs) can charge prepayment charges.

When are banks and HFCs allowed to charge prepayment fees:

Home Loan is taken by non-individuals: When a company or firm borrows funds in the form of housing loan, it is not exempt from foreclosure charges.
Fixed-Rate Home Loan: If you have taken a fixed rate home loan, you will be levied a foreclosure charge for prepayment of home loan. A fixed-rate loan is when the rate of interest is the same throughout the loan tenure. Both banks and HFCs are allowed to levy a penalty on foreclosure of home loan. HFCs, however, can charge a penalty only if you are repaying the loan by borrowing from another bank or HFC. HFCs cannot charge any prepayment penalty if you prepay the loan with your own funds.
Dual rate home loans: Banks are allowed to charge a penalty for foreclosing a dual rate home loan, which is a combination of fixed rate and floating rate of interest. In such cases, the interest rate is fixed for the first few years and then becomes variable.

When are banks and HFCs not allowed to charge prepayment fees:

Floating rate home loan for individuals: Home loan prepayment rules state that prepayment charges or penalties are not levied on borrowers for taking a floating rate home loan. No extra charge is levied on either part or full payment of the loan.
Paying fixed rate home loan from HFCs with own funds: HFCs can not charge prepayment penalty on fixed rate home loan if the individual is repaying with his/ her own funds.
Dual rate home loan: Both banks and HFCs cannot charge a penalty if the borrower prepays the loan after it has shifted to variable rate scheme and has become a floating rate loan.

Prepayment of home loan may not always be the right decision. Only if the long-term benefits surpass the penalty to be paid, should you consider prepaying your loan. If you plan your prepayment well, you may be able to save a lot on interests.

###### What Is A Personal Loan

A personal loan does not require the borrower to provide collateral and so it is an unsecured loan. The purpose or intention of a personal loan is to fund immediate financial contingencies. It could be for business capital, marriage, medical expenses or even foreign trips, though the end use of the capital really depends on the borrower, as long as it is for a legitimate financial need.
Eligibility for a personal loan?
Since these loans are unsecured- at what rate of interest you will get the loan and how much, whether or not you will get the loan-depend on the credit quality of the borrower. If you have good creditworthiness, you are likely to get the loan at an attractive rate of interest. If you have been a long time customer with the bank, with sound track record of financial discipline, you may also get a pre-approved personal loan sanction.
Bank of Baroda lists the following types of employees/self-employed individuals who are eligible for personal loans.

Employees of Central / State Govt. / Autonomous Bodies/ Public / Joint Sector Undertakings, Public Limited Co. / MNCs &amp; Educational Institutions &ndash; with minimum continuous service for 1 year
Employees of Proprietorship, Partnership firms, Private Limited companies, Trust - with minimum continuous service for 1 year
Insurance Agents- doing business for minimum last -2- years
Self Employed Professionals (Doctor, Engineer, Architect, Interior Designers, Tech. and Management Consultants, Practicing Company secretaries etc) -- with minimum 1 year stable business.

Some of the benefits of a personal loan are
Urgent financial requirement
If there is an immediate need for money, personal loans are the best option. They are considered better than credit cards or loans from family members or unorganized lenders, since the rate of interest is reasonable and the lender is a credible organization. Credit cards come with strict credit limits, which is not the case with personal loans. Funds taken from the bank as personal loan also resolve the issue of certain vendors not accepting payment through credit cards.
Breathing time for repayment
Also, the credit card bills need to be paid off by the due date which generally falls in the next month whereas you get some breather in repaying a personal loan EMI over a period of time, generally ranging from 3-4 years.
Flexibility of use
Funds from a personal loan are flexible in the way you use them. They can be used for several purposes- home renovation, travel, wedding and medical expenses or for any other purpose as per one&rsquo;s personal obligations..
Loan amount
The loan amount you can borrow under a personal loan is also significant. For example, with Bank of Baroda offer personal loan amounts based on the eligibility of applicants
Confidential
Personal loans may also be private loans since these loans are often used to meet cash requirements or personal contingencies and thus kept private to a great extent.
Flexible repayment structure
These loans are generally of the nature of short to medium term loans and come with a flexible repayment structure.
Easy to get
For example, Bank of Baroda is popular for personal loans that are quick to get, fast processing, minimal documentation required and offered at attractive rate of interests. Most salaried persons, self-employed and professionals can apply for these personal loans.

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