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How Does A Loan Emi Calculator Work?

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By Author: Neha Sharma
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"With the digital revolution in banking, each lender has their own websites with exhaustive content for their customers. Whether it is informative posts about their products, or blogs about finance and banking, major banks are going the next step to woo their customers. One of the most important tools that banks provide to their customers online is a loan EMI calculator.

A loan EMI calculator is a calculator that shows the monthly installment amount based on certain loan parameters. The loan parameters that an EMI calculator requires are:

• Principal outstanding
• Rate of Interest
• Loan tenure in years or months

Once these details are input in the loan calculator and submitted, the calculator shows the EMI amount for the duration of the loan. Some EMI calculators also show the break up between principal repayment and the interest payment in each installment. Now, there’s no need to wait till the loan has been sanctioned to check the amortisation schedule. It is already available in a few EMI calculators on the internet. Another important point to remember is that these loan calculators are completely free of charge and are available for everyone who visits the bank website, whether they are the bank’s customers or not.

But how do these loan eligibility calculators work? These loan calculators work on the basis of a simple formula:

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

Where:

P= Principal or loan amount

R= Rate of Interest on loan

N=Tenure of loan in years

The EMI amount depends on the rate of interest and the tenure. A loan EMI calculator can be used to find out which lender’s loan offer is the best and which combination of loan tenure and rate of interest leads to the least amount of interest being paid out.

Some home loan eligibility calculators also require the customer to put in monthly or yearly income details as well as the age. The calculator uses this to automatically calculate the amount of loan that the applicant would be eligible for. When it comes to loans for two wheelers or three wheelers, some loan EMI calculators require the model number and the company name so that the value of the loan can be decided based on the price of the vehicle being purchased. Once all these details have been fed into the loan eligibility calculator, it calculates the loan amount that the customer is eligible for and redirects the customer to fill up a form to request a call back from the bank’s customer representatives.


Author Bio:- Neha Sharma is a finance student who loves to write in her free time. She has spent considerable time researching about loan EMI calculator. Through her work, she explains how it works

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