Loans are easy and effective ways of securing finances for your various needs and dreams. Whether you require a personal loan to fund immediate medical expenses or a home loan to purchase a new house, the easy availability of credit allows you to meet all your needs on time. While the benefits of loans are known to all, many borrowers still remain anxious about managing their finances after applying for a loan. EMI calculators help tackle this anxiety by helping you estimate EMIs beforehand and plan your finances accordingly.
How to use an EMI calculator
Most EMI calculators available on bank and NBFC websites are easy to use. They boast a simplified user interface to allow all types of borrowers the convenience of estimating monthly payments with ease.
Using an EMI calculator involves just three easy steps:
Step 1: Enter the principal amount you want to borrow.
Step 2: Select the tenure that suits your needs.
Step 3: Input the rate of interest offered by your shortlisted lender.
While these are generally the standard inputs required for most EMI calculators, sometimes you may need to input a few other details, depending on the type of calculator you are using.
How to navigate your finances with an EMI calculator
EMI calculators are indispensable tools for borrowers looking to secure credit without jeopardising their finances. Here’s how you can use these simple, but effective tools to navigate your finances:
Identify your monthly payment obligation
EMI calculators accurately estimate the exact monthly repayment amount based on the loan amount you wish to borrow, your selected tenure, and the applicable rate of interest. This accurate estimation helps you know what to expect every month. In other words, it dispels any scope for ambiguity vis-a-vis loan repayments. Acknowledging your EMI amounts also helps you manage your expenses accordingly.
Steer clear of overborrowing
Borrowing more than you can afford can have a negative impact on your finances. Since your interest is calculated on the borrowed sum, borrowing a substantial amount will also mean higher interest expenses and higher EMIs. Additionally, overborrowing also ties up funds in EMI payments when these funds could be better utilised for investments. EMI calculators prevent overborrowing by letting you modify loan amounts and loan duration details to find the ideal combination that ensures manageable EMIs.
Choose the most cost-effective loan offer
While all loans come with attached interest rates, you can still choose the most cost-effective offer to maximise savings. EMI calculators help you compare offers and pick the ideal one to ensure interest payments don’t drain your pockets. These tools let you compare different loan amount, tenure, and interest rate combinations to see how your EMIs and total interest costs change with each modification. You can then make an informed choice based on these comparisons to ensure long-term savings. You can even channelise these savings to make purchases on online marketplaces and offline stores.
Understand prepayments
Every EMI calculator offers amortisation schedules for loans, while advanced ones even come with a prepayment option. This option is designed to help you understand how your EMIs will change if you make prepayments. Reviewing this helps you see how paying off a portion of your loan early can bring down interest expenses in the long-run and reduce the tenure as well. You can use EMI calculators to see how changing the prepayment amount affects your EMIs and tenure. You can accordingly plan to divert a portion of windfalls like tax refunds and annual bonuses towards prepayments, while investing the rest for returns.
Plan your budget
You can use EMI calculators to review your potential monthly repayment obligation even before applying for the loan. Knowing your EMI burden in advance allows you to plan your finances around it and balance other financial commitments. For instance, apart from general expenses like rent, utilities, and groceries, you may have existing loan payments. Factoring in a new loan and its corresponding EMI burden will help you understand how you can restructure your budget to accommodate this expense. These insights will also inform your decisions about allocating funds for savings and investments.
Conclusion
EMI calculators simplify the process of navigating your finances. These tools offer accurate estimates of your EMIs, helping you plan ahead and budget. They also prevent overborrowing which may potentially result in missed EMIs and defaults. EMI calculators offer insights on choosing the best loan offers and planning prepayments to help you make informed choices that align with your financial needs and circumstances.