Borrowing money from a bank is not an easy task. The determination of the amount that is to be borrowed isn’t easy either. It is an essential that an individual plan the loan amount properly before applying for a personal loan. Personal loans are usually unsecured loans which are granted by the bank on the basis of your credit score and other eligibility criteria.
Personal loans are different from other loans which are backed by collateral securities. Under personal loans, collateral securities don't exist. However, the process of availing a loan is not an easy one. A bank takes a look at financial statements, credit score, outstanding debts, etc. to get a fair idea about the financial ability of a person to repay the loan.
When you decide to opt for a personal loan, a fair idea of how the loan will work is essential. For this purpose, it’s important that you use an online loan eligibility calculator. An online eligibility calculator will help you to understand the eligibility criteria.
- How much are you looking to borrow?
- For how long?
- At what rate of interest?
A personal loan eligibility calculator is used to understand all of these.
How Does a Personal Loan Calculator Work?
Let’s understand this with an example. Suppose you are to apply for a personal loan. There are few things that a bank or Non-Banking Financial Company website will ask for. These things are:
- Loan Amount: The first thing that you are required to fill is the loan amount that you are looking to obtain from the bank as a personal loan. For example, INR 5 lakhs
- Current Employment Status: It is one of the essential aspects from a financial institution's point of view as the loans are granted only to people who have a stable job. This ensures that they can repay the loan. So you’ll have to select from three options: Self Employed Professional, Self Employed Business, and Salaried. For example, You are a salaried employee.
- Monthly Income: You are required to specify the amount that you earn monthly. A stable monthly income is essential when you are looking for loans. For example, You have a monthly income of INR 30,000.
- Current Location: You need to specify your current location. This helps the bank to understand your situation better.
These are the four important components of personal loan eligibility calculator. Now suppose if you are a salaried employee who is seeking INR 5 lakhs from a bank as a personal loan then an Online eligibility calculator will help you determine whether you are eligible for the loan or not.
An Eligibility calculator is an important tool as it helps in determining the monthly equated amount that you will be required to pay. It’ll tell you about the interest that you will be required to pay on the amount. Different banks offer different rates of interest. Thus you can plan accordingly. The most important use of a personal loan eligibility calculator is to help you plan the course of the loan.
Your loan won’t be sanctioned if you don’t fulfill the criteria. Thus online eligibility calculator will make your job of understanding the eligibility criteria easy. Apart from that, personal loan EMI calculator will help you plan your finance and understand whether paying the monthly installment is ideal for you or not.
Online Personal Loan EMI Calculators
To calculate the monthly interest on a Personal loan, multiply the current loan balance by the yearly interest rate, and divide that number by 12. Each calculator has different values according to the lender, and some offer very complex calculations than other banks. Many online Personal loan EMI calculators allow users to enter an estimated loan amount, loan terms, and interest rate. The calculator provides an estimated EMI value on a fixed rate loan.
Calculating the EMI on variable or floating Loan is complex and different from the fixed rate of interest. A new method has been generated after the financial crisis, that helps calculate long term cost and financial risk in lending for loans.
EMI is calculated easily by using Excel spreadsheets, and it needs three variables such as rate of interest, the number of tenure period and the value of the loan or present value. Also, you cannot always calculate via Excel spreadsheets hence the EMI is calculated by the mathematical formulas which these bankers can use to calculate your EMI Amortization.
EMI is actually deduced based on the variable factors of combining principal and interest. The initial year of the loan, the EMI mostly comprises the interest payable by the borrower. As the loan reaches maturity and most of the EMI is paid, the outstanding loan amount reduces. The interest component thus becomes lower than the actual amount (principal amount). Sometimes the borrowers pay the outstanding amount in lump-sum.
The principal amount refers to the actual amount that has been taken from the bank by the borrower; it is the major portion of the Loan that a borrower needs to pay off in EMI including tax and interest etc. The tenure of the loan refers to the duration the loan is taken for and also determines the EMI a borrower needs to pay.
An annual reducing method is used to calculate EMI, in which the EMI is paid by the borrower at the end of every month. This method can also have a disadvantage, as the borrower is continuing today a small portion of the principal amount of the loan that has already been paid by the borrower.
Monthly reducing loans method is more simple and easy to understand and most common method of calculating EMI. In this method, there is a reduction in principal with EMI being paid every month, and the interest is calculated on the outstanding balance.
Online calculators can give you an approximate idea of what your EMI can be, but if you want to know exact figures, then you are advised to go to your personal banker who can calculate your EMI on the bank tools. This can give you a clearer idea of the EMI. Overall, online calculators can be really helpful in giving you an idea about the possible EMI.
So Using a financial calculator in taking financial decision can be helpful in understanding the eligibility and EMI before you apply for a loan. Once these factors are understood, an individual can look forward to seeking the loan.