Calculate your EMI before taking a personal loan

5 MinsOct 12, 2022

Uday Singh, 27, has been working with a large hotel chain for the last 18 months. A couple of days ago, he got a call from his father informing him that his younger sister Rohini’s marriage had been fixed. His dad also told him that the wedding expenses were likely to be about Rs. 35 lakh and asked to figure out how much Uday could contribute.

While Uday had some money saved up, it would not suffice to meet his sister’s wedding expenses. He decided to avail of a personal loan or a wedding loan, since he was already eligible for a qualified offer from his bank. But he was unsure about how much he would need to repay and if he could afford the monthly repayment. That’s when one of his friends explained how to calculate the Equated Monthly Installments (EMIs) and how to arrive at a figure that was within his budget.

This is what Ashok considered before he made his decision:

1. Getting a fix on the quantum and tenure of the personal loan:
The EMI amount determines the size of the loan (loan amount) and how long Uday can take to repay it (tenure). The general thumb rule was that a large loan size would attract a heftier EMI. Similarly, a longer tenure would result in a smaller EMI. Uday should work out what works best for him.
He may have to opt for a longer loan tenure if he desires a higher loan amount with a lower EMI. This, however, may result in higher total interest outgoes. On the other hand, if, after the calculations, Uday feels that he can efficiently service a higher EMI, he may wish to opt for a shorter tenure.

2. Crucial for financial planning:
A clear understanding of the loan amount, personal loan interest rate, tenure and resultant EMI would help Uday plan his finances.  If, for example, he needs to curtail some expenses – say impulse shopping – to service the loan, such clarity would help.

3. Avoid default:
The worst thing Uday could do is contract a loan at a higher EMI and then default on it because he cannot pay it. This would not only attract penalties from the bank but would also adversely affect his credit score making all further borrowing either more difficult or expensive.

4. Eligibility:
Banks figure out the eligibility of a potential borrower on a combination of factors. A crucial one is that the customer’s total debt servicing from all obligations, including credit cards, personal loans, home loans, auto loans, etc. shouldn’t exceed 40-50% of the customer’s monthly income.
If the bank feels that Uday’s application for a personal loan doesn’t meet this criterion – either because of the loan amount or the tenure, it could reject his application. Each such rejection is likely to hurt his credit score.

How to calculate the EMI? To know his EMI Uday can simply visit the website of any bank and use its EMI calculator. For instance, Axis Bank has a Personal Loan EMI calculator that Uday can use. He will have the flexibility to adjust the loan amount, interest rate and tenure to get a fix on what EMI will work best for him. The calculator will also indicate his total interest outgo over the loan term. This way, Uday will be able to make an informed decision.

Axis Bank offers a range of personal loans tailored to meet the needs of its borrowers. You can also use Axis Bank’s personal loan EMI calculator or personal loan eligibility calculator online.

Disclaimer: The Source, a content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.