Finance

# How to Compare Loan Options by Calculating the EMI and Choosing the Best Offer?

The demand for credit facilities in the country is increasing rapidly as the economy is growing as one of the world’s top economies. So, if you are considering a loan – plan it thoroughly so that the EMIs don’t become a burden on your pocket. This article will guide you regarding steps for loan EMI calculation online and how to choose the best offer.

## What is an EMI?

When you avail of any loan, you must repay the amount within a stipulated period. This repayment happens in parts over a few months and is called Equated Monthly Instalments or EMI. EMIs can be calculated manually using a formula or smartly using an EMI calculator, which is much easier and gives more accurate results within a blink of an eye.

## How do EMI calculators work?

So, whether it is a Home Loan EMI calculator or a Car Loan or any other loan for that matter, the basis of the EMI calculation remains the same.

The formula used by this calculator is as follows – EMI = P * R * (1+R)^N / {(1+R)^N-1}

Where,

P= loan amount (excluding the down payment)

N= loan tenure in months

R= Monthly Rate of Interest

Now that you know the EMI calculator equation, calculating loan EMI is pretty simple. All you have to do is enter certain values, which are the variables mentioned in the above formula only.

## How does an EMI Calculator Help?

Primarily, it helps to quickly calculate the EMIs of different loan options so that you can pick the most suitable loan. This calculator can help–

• Increased Chances of Loan Acceptance – As you will be applying for loans within your budget (since you already know the amount of EMI you have to pay in the future). So a low CIBIL score Personal Loan will not affect you.
• Reduces Probability of Loan Rejections – As you use the calculator to evaluate first and then apply for the loans wisely, chances of rejection will reduce, and thus, your credit score will not be adversely affected.
• Saves Time and Effort In EMI Calculation – As EMI calculation is quite complex when done manually, especially if you do not come from a finance professional.

## How Can EMI Calculators Help Compare Loan Options?

Listed below are three factors that are of prime importance-

Loan amount

The EMI will increase with the loan amount. Find out the EMIs for the various loan sums using the EMI calculator. These calculators allow the user to alter the loan sum while they search for feasible options.

Interest Rate

Without a doubt, the interest rate is the second element that affects the EMI amount. Higher interest rate loans will cost more and have higher EMIs, while the lower interest rate loan will cost less and have lower EMIs. Using the loan EMI amount tool, you can alter the interest rate to see how the EMIs change as the rate changes. This can help you compare loan offers by various loan providers at different interest rates.

Loan tenure

The repayment tenure is the last consideration and impacts the EMIs as well. Given the same loan amount and interest rate, a lengthier term will result in lower monthly instalments, while a shorter term will result in higher monthly payments.

## Conclusion

We hope that this article will be useful as a reference for comparing different loan offers, computing EMIs, and ultimately selecting the most suitable loan offer. Always use the loan EMI calculator to compare and calculate before making a final decision.

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