It is simple to calculate the interest on a personal loan. Many of the lender websites have an online tool that allows you to calculate your EMI on your personal loan instantly. All you have to do is to input the loan amount, tenure and interest rate charged. You will learn how much your EMI will be and how much you will need to pay as interest on your loan.
In general, interest rates on personal loans typically range from 15%-24% but can be lower or higher. Each lender will offer varying interest rates for the loan products depending on their prescribed rates and the customer’s individual credit situation. It is best to check each lender’s website to check what the current interest rates are as these can change from time to time.
What is an EMI - An EMI, or Equated Monthly Instalment, is the amount that is payable every month to the bank or any other financial institution until you repay the loan (including interest) fully. An EMI is paid on a fixed date every month for the entire tenure of the loan. Each EMI consists of the interest on the loan as well as a part of the principal amount that has to be repaid. The interest amount is higher than the principal component during the initial payments and in the later stages of repayment, the interest component decreases and the principal increases. The EMI amount (consisting of interest plus principal repayment), however, remains the same every month.
Advantages of a Personal Loan: The primary benefit of a personal loan is that there are no restrictions on how you spend the loan amount. It could be on any personal expense like a wedding celebration or a vacation or home renovation or even medical expenses. If you need money for a personal expense and plan to repay it quickly, then this kind of loan is a good option.
Another advantage of a personal loan is that it is an unsecured loan which means you do not need to offer any collateral to the lender – unlike home, auto or gold loans. It is sanctioned based on your credit score and credit history.
Disadvantages: However, the downside is that personal loans are also the most expensive loans to get precisely because they do not require any collateral. Since the lenders do not have any safeguard against default, they charge a higher interest rate on personal loans to cover their risk.
In effect, the loan amount sanctioned and interest rate you are charged is based on your income, repayment capacity (existing loan obligations) and credit history.
Don’t forget that there might be other expenses like the loan processing fee (a percentage of the loan amount), a fee for the credit report, stamp duty and photocopy charges.