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These days often we come across the term EMI. If you tend to ask any lay man of this term, the impulsive answer given by anyone will be that it has got something to do with taking loans. These days with the advent of new-age capitalism the trend of buying things on loan has picked up pace. This makes the understanding of the EMI all the more critical. So let us try and understand how the system of EMI works and what are the things one need to know with respect to EMIs. EMI is a facility which helps the loan-taker or borrower to plan his budget. The calculation of EMI is done by taking into consideration the overall loan amount, the rate of interest applicable and the repayment time frame of the borrowed sum. EMI is the acronym of Equated Monthly Installment. This is the amount that needs to be paid back to the banker/lender on a prescribed date every month until and unless the whole amount, that is due, is repaid during the tenure previously agreed upon. Now most people will assume that the equal amount of interest and principal has to be paid to the lender each month. But hold on that is far from reality, in fact in the initial years the component of interest outweighs the principal and in the latter years the component of principal is higher. So, if you assume that you have repaid half the sum borrowed from the lender in say 5 years for a loan of 10 year tenure, that would be wishful thinking at best. It's true that the interest component will see a dramatic reduction but you would have contributed the majority of the repayment toward the interest component rather than the principal.

 

Rate of Interest Rate of Interest
Required Loan Amount Rupees
Months EMI
12  
24  
36  
48  
60  
72  

 

 

 

Let's take a simple hypothetical and try to understand how the repayment of the EMIs is instrumental in reducing the loan amount during the period of repayment up till the end of the tenure of the loan. Assume the loan amount to be 2, 00,000, which has been borrowed at an interest of 12% per annum for a tenure of 12 months. The EMI for each month is calculated at the annual rate of 12% and the amount is calculated at 17,770/month with the component of interest totaling to Rs 13,238.

 

It is will clearly visible that the repaid interest component decreases with the passage of every month and the repaid principal amount increase. This implies that for a larger loan amount of say 10 lakhs with a even longer tenure of say 20 years, the component of interest will make the larger chunk of the EMI amount, which will over time reduce, while it will be opposite for the component of principal.

 

Well the new EMI calculator make your life that simpler. Simply put in your desired loan amount, the rate of interest that is offered and the tenure. And out comes your Equated Monthly Installments (EMI) amount to be paid monthly in the flash of an eye, which you need to pay. What you get as an output is literally a benchmark to measure the viability and feasibility of various lenders against. You can calculate the amount and compare the outputs using the EMI calculator with the offered EMIs by several lenders. This small exercise, if done before hand, will certainly help you to understand and comprehend what are the different interest rates are offered by various lenders and in the process you negotiate a far better deal. To increase your pleasure and a hiccup-free ride towards getting your loan, our EMI calculator will let you see how the EMI, that you ought to repay, is apportioned into interest and principal.

 

The EMI amount you will arrive at will give you a holistic view of the commitment you make financially. Say for instances, you will be in a position to judge, with your monthly salary, do you should/can make this commitment for the supposed tenure of the loan. It will certainly be instrumental to pan your finances better.

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