How Does Personal Loan EMI Vary According to the Market and How to Calculate the Same?

Owing a house or a car is a matter of great pride for every individual. The loan facility offered by several banks and financial institutions in India makes it easy for one to purchase a house and even a car. A car loan or a home loan is a secured loan that is offered keeping the vehicle or the house itself as a collateral. Even in times of a financial emergency, a personal loan comes in handy to help you cater to your urgent money requirements. Personal loan being an unsecured type of loan is offered on the basis of an individual’s credit score and eligibility factors. This type of loan is collateral-free which means that you don’t have to risk any of your assets like your jewellery, house, insurance policies and others to avail the loan amount. The loan can be repaid in easy EMIs ranging from 6 months-72 months depending on the loan amount and the lender you are opting for. Read this article to know how personal loan EMI varies and how you can calculate the same. 

What is personal loan EMI?

Personal loan EMI, known as personal loan equated monthly installment is the repayment of the borrowed money you have to make in flexible tenures. The EMI amount and the loan duration is fixed and is decided in the beginning itself. Personal loan is an unsecured form of lending which means that defaulting on the loan EMIs doesn’t risk any of your assets but instead puts your credit future at risk. Late payment or defaulting on the personal loan EMI payments can hurt your credit score which may lead to rejection of your loan and credit card applications in future. 

Factors that affect personal loan EMI

Personal loan EMI varies depending on the below factors that have a major influence on the same. 

Monthly income: The salary that you draw each month has a major influence on the personal loan interest rate that directly affects the EMI you have to pay each month. Offering an unsecured loan to a high-salaried individual is any day a safe bet for any lender as chances of loan repayment are quite high. People with a high income are considered to be more responsible and are likely to default less on the EMI payments.

Past repayment history: Having a good repayment history works well for you in terms of loan amount and the interest rate offered. Making timely payments of your loan EMIs and credit card bills add up to your credit score, reflecting your disciplined credit behaviour thus ensuring that the lender offers you the loan at a low interest rate. 

Credit score: Your credit score is one of the primary factors that decide your personal loan EMI amount; it is an important factor considering by the lender when processing your loan application. Having a score of 650 and above is considered to be an ideal score for lending as it reflects a decent credit behaviour.

Employment status: Working for a credible organization ensures that you get personal loan at low interest rate. This is because when working for a good company you are considered to be more responsible and are less likely to default on personal loan EMI payments. 

Nature of employment: Personal loan EMI is also majorly influenced by the nature of your employment. Interest rate offered to salaried and self-employment individual is different. 

How to calculate EMI?

Personal loan EMI can be calculated using the below formula:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

In the above formula, P, R and N stand for the following:

• P is the principal loan amount
• R is the rate of interest at which the principal loan amount is offered
• N is the tenure of loan repayment

Principal loan amount: This is the borrowed loan amount on which the rate of interest is applied and then the amount is divided in EMIs. Your EMI payment towards your loan should not be more than 40% of monthly income.

Interest rate: Interest rate charged can be either on a fixed or floating basis. Fixed interest rate means the EMI stays the same throughout the loan tenure, whereas floating rate means that the rate can vary depending on the market situation.

Tenure of the loan: This is the time within which the loan amount taken has to be repaid. The tenure ranges from 6 months-72 months depending on your eligibility and the lender. 

Conclusion

Personal loan EMI can also be calculated in an easy way using a personal loan calculator that helps you get an estimate of the EMI you would have to pay out to the lender each month. Using an EMI calculator is easy and saves you from the tedious task of carrying out manual calculations.