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Read on to learn how you can figure out the functionality of the different loan parameters and what role they specifically play in your loan repayment pattern. BankBazaar.com’s EMI calculator is a fantastic tool that can help you manage the various loan parameters to become debt free in the most efficient manner possible.
Equated Monthly Installments (EMI) means just that! It refers to equal sums of money paid out every month until a loan is fully repaid. The EMI remains a constant during the entire tenure of a loan but when a revision happens in the interest rate, sometimes the EMI increases, with or without any change to the repayment tenure. This is true in the case of a floating interest rate loan where the revision is applied to the outstanding loan amount at that point in time. Try changing interest rates to compare your loan situation before and after an interest rate hike. Try this out in our EMI calculator above! Remember to use the outstanding loan amount that is due in that particular month when the interest rate changes to arrive at your new EMI or loan tenure as the case maybe!
Principal and interest ratio in EMI!
So if EMI is a constant does that mean you repay the principal and interest also split equally? No, that is not the case! The amortization table that your bank will provide when the loan repayment begins will help you see how the principal and interest component are combined in the EMI. In the initial years the interest portion of the EMI is much higher compared to the principal portion of the EMI. In the latter years of the loan tenure the reverse is true. So if you think in a 10 year loan, you have actually repaid 50% of your outstanding loan amount, look again at your amortization table to realize this is not the case! Try providing your intended loan parameters in our EMI calculator above. Then look at the amortization table that is generated for the loan amount to understand how principal and EMI are repaid in a loan.
Understanding Loan Repayment Tenure
Loan repayment tenure is the number of years it takes to repay a loan. In the case of a floating interest rate loan, periodic interest rate revision happens depending on market conditions. In such instances, mostly the repayment tenure is increased while the EMI is kept constant. However, this may not be the case always! If the borrower is closer to his retirement age, the EMI maybe increased and not the tenure. Also, in the case of several consecutive interest rate hikes sometimes both the repayment tenure and EMI are increased to accommodate the repetitive hikes.
Relationship between EMI and loan tenure
Let us consider the example of a car loan. What is the difference for the borrower who takes up a 3 year car loan repayment tenure compared to an individual who takes up the 5 year repayment tenure for his car loan at the same interest rate? The former repays the loan in 3 years with a higher EMI while the latter repays the loan with a comparatively lesser EMI in 5 years. Try this out in our EMI calculator to understand exactly what we mean!
The Interest factor in loan repayment tenure
The interesting aspect (pun intended!) is that longer tenures result in higher interest outgo and the reverse is true in the case of shorter tenures. Before you decide to take up any loan you need to calculate the total interest cost, which means how much interest you will pay in total at the end of your loan repayment tenure! This usually comes in handy when you are faced with the choice of choosing between two loan offers. Understanding how the total loan cost works out by factoring in total interest outgo, processing fee and other charges built into the loan offer will help you arrive at a good loan decision. Try toggling with different tenures in our EMI calculator above to understand how you can save on total interest due on your loan!
The Prepayment factor
When you prepay you actually reduce your loan repayment tenure and hence the total interest outgo! How does this work? Every time you prepay, the prepaid amount gets directly deducted from your outstanding principal amount and even by prepaying small amounts on a regular basis and you can bring down your repayment tenure and thereby your total interest component in the loan significantly down! Use the prepayment tab in the above EMI calculator to figure out how much interest you can exactly save in your current loan situation!
How to make the most of your loan repayment!
Ideally you should opt for a safe loan repayment tenure, which allows you to spend no more than 40-50% of your monthly income towards your loan repayment! Prepay when you get your yearly bonus or a sudden financial windfall or hike in salary! You can also set aside some money to periodically pay small amounts every quarter to help close your debt early and save on interest! Try different variations with our EMI calculator above to figure out your ideal EMI and prepayment amount that will help you make the most of your loan situation!
Related Loan Calculators:
Home Loan Refinance Calculator – Use this calculator to figure out if shifting your home loan to a different bank or a different interest rate can help you save on your total interest cost.
Home Loan Repayment Tenure calculator – Do you want to plan your finances for the future and wondering how you can work this around your current loan repayment schedule? This calculator will show exactly how long you will take to repay your current loan! You can factor in your current interest rate and outstanding loan amount to figure this out and manage your finances better!
Loan Eligibility Calculators
It is best to check the exact total cost including fees before applying for any kind of loan. BankBazaar is the only site that has developed such a calculator where you can compare rates from multiple banks, choose the best loan for your profile and requirements and apply to bank - everything completely online. This would save users a lot of time in their search for loans. Home Loan Eligibility Calculator, Personal Loan Eligibility Calculator, Car Loan Eligibility Calculator