It is simple to calculate the interest on a personal loan - or any loan for that matter! All you need is a calculator. Alternatively, there are a variety of online tools that will help you calculate how much you will pay as interest over the duration of your loan.
Many of the lender websites have an online tool that allows you to instantly calculate your EMI (Equated Monthly Instalment) or just the interest on your personal loan. All you have to do is to input
1. the loan amount
2. tenure and
3. interest rate charged.
You will immediately know how much your EMI will be and how much you will need to pay as interest over the entire loan period.
You can also use this tool to calculate the interest you will pay for different loan amounts, or for different loan periods or interest rate. Knowing the various options will help you plan your borrowing to suit your requirements.
Interest rates on personal loans
In general, interest rates on personal loans typically range from 15%-24% but can be lower or higher depending on the lender and the customer’s individual credit situation. It is best to check with each lender to learn the interest rates they charge, 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 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. A personal loan is sanctioned based on your income, 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. Keep these in mind when calculating the cost of taking a loan.