It is a matter of fact that it is very easy taking online personal loans; however, it is not very easy to repay the loans. The personal loans are considered to be unsecured loans, which means banks do not ask for any collateral as well as guarantor. The banks and NBFCs charge a higher rate of interest. When you would be repaying the loan, the monthly EMI would drain up your entire salary.
What is an EMI?
EMI happens to be the amount that you need to repay to the bank at the end of every month. The value of EMI depends upon the number of instalments in which you have agreed upon to pay the loan back to the bank. EMI is associated with all the credit products of the bank, starting from personal loans to credit cards. The principles of EMI calculation keeps on varying from one bank to the other. You can pay the EMI by activating the electronic clearing system or else you can also deposit a post dated cheque at the bank.
The breakup of EMI
When you pay the EMI back to the bank, you pay the interest along with the principal amount. If you have taken a personal loan for a certain amount, then that amount is equally divided into smaller amounts across the number of instalments, you have mutually agreed. Then the interest is calculated on the total amount, and it is proportionally distributed across all the instalments. In the initial years of loan repayment, the interest turns out to be a significant share, and towards the end, the principal has a considerable percentage. Interest in the initial days is very high and with the passage of time, it tapers off. When the tenure of loan repayment is longer, the banks levy a high rate of interest. You will be paying an exorbitant amount in terms of interest over the total duration of the loan. If you book less number of instalments, then you would require paying for a small amount of overall interest.
Calculation of EMI
There are various ways of calculation of interest and monthly EMI. You can make use of the basic formula that you have learned in your school days while solving simple and compound interest problems.
EMI = (Principal x interest rate)*(1+interest rate) n / ((1+interest rate) n – 1)
If you are not good at mathematics, then you can easily make use of the online personal loan calculator that lets you calculate all the bells and whistles related to a personal loan in a matter of seconds. This calculator is free to use, and it has been made very user-friendly so that anyone can use it.
Lastly,
It is at all times recommended and suggested to go with a personal loan only if they are necessary. As you might have already been aware of the fact, that repayment can cause a problem, so you should think about repayment before signing the documents. And if you have enough assets to pay the loan in a shorter period of time, then you should choose to pay back the same.
