EMI calculationThere are three components that primarily affect EMIs. They are the loan amount, the rate of interest, and the loan tenure.
1. Loan amount- The loan amount is also known as the principal amount. It is the total amount borrowed from the lender and is directly proportional to the EMI. Therefore, a high loan amount leads to a high EMI. Some lenders allow the borrowers to use only a part of the sanctioned amount, and the interest is charged only on that used amount. This way the customer can reduce the total amount payable to a large extent.
2. Rate of interest- This is the rate charged by the lenders on the borrowed money. The interest rate is higher for a personal loan that other types of loans. It is directly proportional to the EMI. Thus, a high-interest rate leads to a high EMI.
3. Loan tenure- Tenure is the period for which the loan is granted. It is inversely proportional to the EMI. In other words, longer tenures mean lower EMIs.
These are the three factors that affect EMI. Therefore, these three parameters need to be fed while calculating the EMI. The universal formula for calculating the EMI is as follows:
- Importance of calculating the EMI
People don’t have to waste time any longer in calculating the EMIs manually, as they can be calculated using an ICICI personal loan EMI calculator. It is an online tool that shows the EMIs instantly. It is very important to calculate EMIs before availing a loan for various reasons.
1. Budget expenses- In the sheer enthusiasm of getting the finance; many applicants merely plan what they will do with the loan money, but not how they will manage the repayment. Being underprepared from the debt-repayment perspective is utter foolishness. Knowing what the EMI would be before applying for a loan enables applicants to budget their expenses accordingly.
2. The Aftereffects- Customers who have calculated their EMIs are prepared for what they are getting into post availing a loan. They plan how their lives will be impacted due to the EMI, and deal with the debt repayments in a better way. Moreover, they have a better credit score than those who go unprepared.
3. Better deals- As we know that calculating ICICI personal loan EMI using tool is free of cost and can be utilized without any limitations on the number of times one can use it. Therefore, potential borrowers can use it to compare the loan schemes offered by various financial institutions. The applicants are thus guided to better deals.
4. The breakup of EMIs- EMIs are calculated by the lender in such a way that a part of the principal and a part of the interest is repaid with every installment. During the initial repayment period, a larger proportion of the EMI is allocated towards interest repayment, while the later phase of the tenure is accounted towards repayment of the principal loan amount. This is illustrated and deducted clearly in an amortization schedule table. This schedule is also displayed upon using the ICICI EMI calculator. Amortization table helps the users understand the break-up of EMI into principal and interest components properly.
Therefore, it is important for borrowers to use the EMI calculator and calculate their disposable income post loan disbursal. Knowing the EMI will keep the applicants from hitting the bottom in many ways.