Personal loans have become a necessity in today’s world. The cost of many commodities may have decreased but the need for commodities has increased. Therefore, it is very likely that you have already availed some sort of a loan by now or you are about to in the near future. Either way, you should know all aspects regarding a loan. One of the best ways to find out all the aspects of a loan is to use a personal loan EMI calculator. However, you should also know how they function? Let’s find out
The Workings of Loan Calculator for Personal Loans
If you are applying for a personal loan then you should calculate important aspects of a loan beforehand. These include the interest rate, EMIs, tenure of the loan, etc. The easiest way to determine the above-mentioned aspects is by using a personal loan EMI calculator. However, you should also which EMI calculation formula is used by the calculator as it changes depending on the loan.
There are two EMI calculation formula used by a loan calculator for personal loans. They are: Flat Interest Rate Method and Reducing Balance Method.
The formula for flat rate interest method is: EMI = (Principal Amount X Number of Years X Interest Rate Per Annum)/Number of Instalments.
The Formula for reducing balance method is: EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
For the formula of reducing balance method given above, assume that P is the Loan Amount, R is the Interest Rate per month, and N is the Tenure. Still, since the formula requires interest rate in months, you will have to find it out. The formula for it is:
Interest rate per month = Interest rate per instalment x Outstanding loan amount
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