When it comes to personal financing, interest calculation acquires critical importance. The reason being, it ultimately contributes to determining the total loan liability borrowers need to meet. It is thus always prudent that one estimates the total interest payable on a personal loan, or for that matter, any other financing option, before initiating an application process.
Nonetheless, manual computations always carry a risk of error, thus reducing your chances of accurate calculations. Various financial institutions have thus introduced dedicated tools like an interest calculator. It assists prospective personal loan borrowers in determining their total interest payable for the loan tenor. You may as well get a fair understanding of how the calculator works to utilise this tool better.
Steps to use the calculator for total interest estimation
Many reputed financial institutions host interest calculators on their official websites for free to enable easy access. These tools usually come with a simple interface that makes them intuitive to understand and easy to use. You only need to provide a few entries to obtain the desired result. Following are a few defined steps by which you can compute the interest payable on your personal loan.
Step 1: Visit the official website of your selected lender providing this calculator, and navigate to the page it is hosted in
Step 2: Next, choose a suitable loan amount that you are seeking to avail. Such selection is usually ranged between the highest and the lowest amount provided by a lender on this entry scale mentioned here
Step 3: Match your loan amount with repayment suitability to determine a reasonable tenor accordingly. Also, make the entry in months. So, if you are seeking financing for four years, the tenor entry would be 48 months
Step 4: You also need to provide the interest rate applicable to the loan option selected by you. Check the interest rate on a personal loan with your chosen lender before proceeding to make correct entries
Once you have made these entries, the interest calculator will reflect the total interest payable immediately. Also, take care of other factors that affect your personal loan interest rate.
The calculator for personal loan interest payable serves utilities more than just computing the interest payable. It thus reflects the following results post your entries.
- Total interest payable on the loan
- EMIs payable throughout the loan tenor
- Total loan liability payable, which shall include both principal and interest components
It is thus also easy to calculate loan EMI with the tool, whereby such estimations assist in making an informed borrowing decision, so the repayments are kept affordable.
How does the personal loan interest calculator work?
These tools are pre-set with specific formulas that allow quick computation of the results. The online personal loan calculator thus works based on the following formula.
- EMI = P x r x (1+r)^n/[(1+r)^n-1]
Herein, P stands for the loan principal or the amount you seek to avail, r denotes the interest rate applicable to the loan, and n stands for repayment tenor denoted in months.
When making the entries, one needs to know that while the interest rate on a personal loan is the primary determinant of the total interest payable, other factors contribute to this liability too. Following is a look –
- Impact of the loan amount on interest payable: The loan amount is directly related to the total interest payable by a borrower. Thus, an increased loan amount means a higher interest liability and vice-versa.
- Impact of tenor selected on interest payable: As loan interest charge is based on the time value of money, a long tenor automatically attracts a higher interest payable, whereas a short tenor selection brings down the interest liability.
If the interest payable computed seems unaffordable in the first instance of entry, you can make changes to the above to factor entries and compare results to strike affordability. Note that such changes will also impact your EMIs payable, which you might keep a check on as well for an overall convenience of financing. Look out for the lowest interest rate on personal loans through market comparison before proceeding to avail better interest rates for personal loans
Lending financial institutions like Bajaj Finserv provide free access to the interest calculator. They also make financing quick and convenient with their pre-approved offers. These offers are available on various financial products, including personal loans, business loans and credit cards, etc. Provide only your name and contact details to check your pre-approved offer.
When using the interest calculator, you can be assured of accuracy in computation and rely on the results obtained for making crucial borrowing decisions. You can also use these tools to choose personal loan prepayment options before initiating a personal loan application.
Anika Sharma