India, Sept. 30 — For someone considering taking a loan, be it for buying a house, a car, or any other event, a major concern always on the backdrop is the loan’s financial burden. One significant part of this financial liability is the equated monthly instalment or EMI, and knowing how it is calculated can make a lot of difference.
An EMI calculator is not just any device that calculates how much you need to pay per month. It is a technology-assisted tool that can help you save on interest and have a better plan for your finances. This article tries to explain how an EMI calculator can help you save on the interest part.
An EMI calculator is a digital tool provided by various financial institutions that shows the monthly instalment for you to repay a certain amount of loan over a specified period. In a simpler way, if we provide input such as loan amount, interest rate, and tenure, the EMI calculator will come up with how much we would have to pay every month. Like a SIP calculator, it is also a free tool and comes with a user-friendly interface.
How Can EMI Calculators Help in Lowering Your Interest?
So, how does an EMI calculator help us save on loan interest? Check that out below:
1. Selecting the Correct Loan Tenure
One of the most vital decisions to make while applying for a loan is picking the right duration. A longer tenure will have lower EMIs, and hence, the loan will seem easier to repay but at a higher rate over time. While a shorter tenure comes with a low interest, the amount to be paid every month is high. An EMI calculation tool tells us how higher EMIs might be for a shorter period. It lets you decide whether it will be financially sound for you to pay the high EMIs or opt for a lower monthly repayment amount but at a high interest rate.
2. Reducing the Amount of Interest You Pay In Total
An EMI calculator permits you to play around with various loan tenures and automatically see the effect on your EMI as well as the total interest you pay on the loan. Ensure that you establish a balance to allow for a manageable EMI and, at the same time, minimise the amount of interest you pay. You can work out a tenure that, in the long run, helps you save money.
3. Comparing Different Rates of Interest
The rate of interest differs from one borrower to the next, depending on the tenure of the loan. This tool allows you to compare different lenders’ rates of interest. So, you can always choose the one that allows you to pay the least amount of interest.
4. Deciding on Whether to Prepay the Principal Amount
Most loans offer you the option of prepaying the principal amount. The importance of prepaying is that you will be in a position to reduce the principal outstanding, which will require you to pay less interest. You can use this tool to estimate how much you will save on the amount of interest you would have paid In total to allow you to make a wise decision. Calculate the reduced tenure or the EMI and compare it with the already sanctioned tenure. This will automatically allow you to know how much you will save.
Summing up
An EMI calculator is a straightforward tool that can make the borrowing process more cost-effective for you. Use it to determine favourable interest rates that won’t increase your financial burden.