If you are planning to raise a personal loan, one of the vital things to consider is your monthly instalment or equated monthly instalment (EMI). Higher the amount, faster the repayment period. Conversely, lower the EMI, longer it would take to repay the loan.
Let us understand how it works. An EMI calculator uses three inputs: amount of personal loan, rate of interest and loan tenure. All three inputs have their unique impact on loan EMI.
For instance, when loan amount and interest rate are high, EMI would be high. But when loan tenur is long, EMI would accordingly fall.
Impact of three variables on EMI
Loan amount: This is directly proportional to loan EMI. When it increases, EMI increases, and when it falls, EMI also goes down.
Rate of interest: This is also directly proportional to the loan EMI. In the case of a 12 percent interest, EMI would be higher than the scenario when the interest is 10 percent.
Tenure of loan: This is inversely proportional to loan EMI. When it increases, EMI declines. For instance, when tenure is raised from 3 to 5 years, EMI would fall.
Let us understand with the help of an illustration. Sameer has taken a ₹10 lakh loan for five years. The rate of interest is 10 percent. The EMI calculator, which you can access here, shows that EMI in this case would be ₹21,247. We take three different scenarios to determine the impact of the change of all three variables.
Scenario I: Loan amount is changed — When the loan amount increases from ₹10 lakh to ₹11 lakh, EMI would spike to ₹23,371.
Scenario II: Rate of interest is changed – When the interest increases from 10 to 11 percent, the EMI would increase from ₹21,247 to ₹21,742. Likewise, it would fall if the interest rate falls.
Scenario III: Tenure is changed – When the tenure is raised from 5 to 6 years, EMI would decline to ₹18,525.
As we observed in the above scenarios, all three variables impact the EMI amount. So, you could use the EMI calculator to try different options to compute the EMI which suits your requirement.
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