When securing a personal loan, it’s crucial to comprehend the monthly payment commitment. This understanding aids in a more effective comparison of lenders and facilitates the decision-making process between opting for an interest-only or a mortised loan based on your needs. Utilising loan payment calculators proves to be a valuable tool in comprehending the actual expenses associated with a loan before borrowing.
There are two primary methods for determining your personal loan payments:
Utilising a personal loan EMI calculator: This is the most straightforward and rapid approach. Many banks and financial institutions provide personal loan EMI calculators on their websites. Typically, these calculators prompt you to enter the following details including principal amount (desired loan amount), annual interest rate (the percentage rate applied annually to the loan), and loan duration (the period over which the loan will be repaid, in months or years). The tool will subsequently provide you with your monthly EMI details, representing the consistent amount you are required to pay each month for the loan.
Using the EMI Formula: You have the option to compute your EMI independently by employing the following formula.
EMI = [P x R x (1+R) ^ N] / [ (1+R) ^ (N-1) ]
where
EMI = Equated Monthly Installment
P = Principal amount (loan amount)
R = Monthly interest rate (annual interest rate divided by 12)
N = Total number of monthly installments (loan tenure in months)
Nevertheless, it’s important to note that the EMI obtained from the calculator or formula solely encompasses your principal and interest payments. Additional fees related to the loan, such as processing fees or origination fees, may also apply.
Certain calculators might also display the overall interest accrued throughout the loan’s lifespan and the total repayment amount. Utilising the calculator allows you to compare various loan alternatives by considering personal loan interest rates and loan durations, helping you identify the EMI that aligns most suitably with your budget.
Personal loan interest rates 2024
Here are the list top five banks offering lowest personal loan interest rates:
| Name of lender | Interest rate (p.a %) |
| Bandhan Bank | 9.47% onwards |
| Indian Bank | 10.00% – 15.05% |
| PNB | 10.40% – 16.95% |
| HDFC Bank | 10.50% onwards |
| ICICI Bank | 10.80% onwards |
| Source: paisabazaar; interest rates as of 5 August 2024 | |
Deciding between a short or long tenure relies on your financial capabilities and objectives. Opt for a shorter tenure if you can easily handle larger EMIs and aim for a swift loan repayment. On the other hand, if you prioritise smaller EMIs for better monthly budget management, a longer tenure might be a more fitting choice.
While the loan tenure doesn’t directly affect the interest rate, certain lenders might provide slightly varied personal loan interest rates based on different loan durations. Typically, lenders may propose lower interest rates for shorter tenures as an incentive for borrowers to expedite loan repayment.
Many lenders permit borrowers to make early repayments on personal loans. While certain lenders may impose a prepayment penalty, others might have clauses that exempt you from additional charges for prepayment.
The loan tenure itself doesn’t have a direct impact on your credit score. Nevertheless, adhering to a consistent repayment schedule throughout the chosen tenure can have a positive effect on your credit score, showcasing responsible financial behaviour.
Opting for a longer loan tenure results in a higher total interest paid over the duration of the loan, while a shorter tenure decreases the overall interest cost. Borrowers need to weigh the trade-off between lower monthly EMIs and the higher interest payments incurred throughout the loan term.
