If you have recently taken a personal loan at a fixed rate of interest, you must find out the instalment that you need to pay every month.
It's recommended to use a personal loan EMI calculator to determine the exact monthly payment.
For those who are unaware, a personal loan EMI hinges on two key factors: rate of interest and loan duration. If the rate of interest increases, the loan EMI increases. And when the loan duration increases, the EMI falls.
So, while the rate of interest and monthly instalments are directly proportional to each other, the time duration and EMIs share an inverse relationship.
For the sake of simplicity, let us assume that you took a ₹10 lakh personal loan at 12 per cent interest. When the duration of loan repayment is three years, the EMI will be ₹33,214.
Suppose, you find this monthly obligation too large to bear. So, you decide to repay the loan across a long duration, say, four years. When you decide to repay the loan in four years, the EMI would fall to ₹26,333. Now, if you think even this is too large an amount, what would you do now?
You can decide to repay the loan over a longer duration, say five years. By using the EMI calculator, you will find out that the EMI would now be ₹22,244.
Duration | EMI (Rs) |
| 2 years | 47,073 |
| 3 years | 33,214 |
| 3.5 years | 30,455 |
| 4 years | 26,333 |
| 5 years | 22,244 |
(Source: livemint.com/loans/personal-loan-emi-calculator)
Suppose you think four or five years will be too long to continue with the EMI and want to settle for somewhere between the two. And the maximum EMI that you want to shell out is around ₹30,500.
So, you try between three and four years. At 3.5 years (40 months), you realise that the monthly instalment turns out to be ₹30,455 – which is exactly what you can afford, that too over a period of 3.5 years. So, you decide to opt for it.
It is worth considering that all these calculations are meant to be done before signing the dotted line. Once you accept the terms and conditions of personal loan, your bank may not agree to the change in loan tenure at a later date.
Although you practically have no control over deciding the rate of interest that the bank is going to charge, you can definitely decide the loan duration, thus impacting your monthly instalment.
(Note: Remember that borrowing money comes with a set of risks)
