⚠️ Use credit cards responsibly!

🔥 All-time high! 90,000 points. Grab it

Although we put in a lot of effort to give our readers unbiased information, and we include many credit card offers on our website for which we do not get paid any compensation, we are legally required to notify you that we may be receiving compensation from some of the credit card companies mentioned on our website.

Some of the credit card offers which appear on helpmebuildcredit.com are from credit card companies from which this site possibly receives compensation. This compensation may impact how and where credit card offers appear on this site. This site possibly does not include all available credit card offers.

Close

# How to Calculate Your Personal Loan EMI

- Apr 25, 2022 0 comments

An Equated Monthly Installment, also called EMI, is a fixed amount paid by a debtor to a lender on a given date each month. Before applying for a personal loan, you must calculate your EMI first.
There are two ways of calculating your loan EMI – using the reducing-balance method or the flat-rate method. Both use the principal amount of the loan, interest rate, and loan term to calculate the EMI.

# How to Calculate the Flat-Rate Method

The flat-rate method is used to obtain the fixed EMI. This method calculates the interest of the principal loan amount over its term, so the interest rate remains unchanged and does not decrease. As a result, your original loan amount reduces with your monthly EMI.

For example, suppose you obtain a \$10,000 loan with a 5% yearly interest rate over a two-year term. You can expect to pay a total interest amount of \$1,000 throughout the period with these figures.

It will cost you \$27.78 per month. So, the EMI for your \$10,000 loan will be \$458.33 [(\$10,000 + \$1,000)/24]. So, the payment to the principal of each EMI will be \$430.55 (\$458.33 – \$27.78). It accounts for 85 percent of each EMI, with the interest payment accounting for the remaining 15%.

To successfully calculate your EMI, you must know the interest rate offered by the lender beforehand. You must also check your local loan guidelines to understand how much interest your lender of quick cash loans is allowed to impose on you.

Each state has its respective guidelines when it comes to loan interest rates. For instance, if you apply for loans in Chicago, Illinois, you should not be charged more than 36%. It’s one of the states where consumer loans are capped at 36%.

## How to Calculate the Reducing-Balance Method

The reducing-balance method is used to calculate the diminishing balance of your loan. In addition, this method will compute the interest rate of your loan according to the outstanding balance of your principal loan amount.

Your principal loan amount and interest rate will change over time. So, as you repay the loan, your interest rate gradually decreases, and the larger portion goes towards your principal amount.

The EMI can be calculated by using this formula:

A= Pxr(1+r)n/(1+r)n -1

• A is the periodic EMI amount
• P is the principal amount of the loan
• r is the periodic yearly interest rate (Yearly interest rate divided by 12)
• n is the total number of payments which can be equal to the number of months during the loan term.

## The Easy Way

If you think manually calculating your EMI is confusing, you can opt to use an online EMI calculator. Lenders typically have EMI calculators on their websites to provide customers with easy access to this information.

Using the lender’s EMI calculator will also help you decide which lender can provide you with the best loan term before consulting them.

## The Importance of Knowing Your EMI

It’s advised that every individual who plans to apply for a loan should calculate their EMI. It will help you in several ways, such as:

You Can Have an Idea of How Much You Can Afford to Borrow

The first advantage you will get is that you will know if you can afford to pay a specific amount. Calculating your loan EMI in advance will help you decide on an amount that fits your budget.

You can adjust the numbers when you calculate your EMI to arrive at the best suitable amount. You should try various amounts to know how much you should borrow to help yourself with your financial needs without adding more burden to your finances.

After knowing how much you can borrow based on the loan’s interest rate, you can adjust the loan term as per your financial needs. Choose a loan term that you can comfortably bear.

Calculating your EMI will help you schedule and plan out your repayment according to your capacity to pay the loan. Remember, the longer the term, the shorter the monthly repayment amount you will pay. However, it would be best if you also considered that you would be paying higher interest rates over time.

Helps You Plan Prepayment

Calculating your EMI will help you not only plan your repayment but also with your prepayment. With this, you can adjust your budget before even acquiring the loan. You can also start saving money and use it to pay off your loan early in the future.

## Don’t Rush

When you acquire a loan, you should shop for the lender that can offer you the best loan term. Before signing a loan agreement, the first step you must take is to calculate the projected EMI of the loan you plan to acquire. This way, you can compare the options and choose the one that suits you best.

Rikki Rikki is a full-time contributor for HelpMeBuildCredit.com. She likes to think of the credit world as a place where each credit card is used to its maximum reward capabilities. Other than that, tulips and blue skies are next on the list for a lovely world.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

#### Recent Posts

our WhatsApp channel

### Today's best offers

#### Ink Business Unlimited Credit Card

Earn 90,000 points after spending \$6,000 within the first 3 months.

Intro 0% APR for 12 months on purchases (after that 18.49% to 24.49% variable).

#### Capital One Spark Cash Plus

Highest ever!! Earn \$2,000 after spending \$30,000 within the first 3 months. Plus, earn an additional \$2,000 for every \$500,000 you spend during the first year. You can earn the bonus unlimited times over the course of the first year!

#### Capital One Venture X Business

Earn 150,000 miles after spending \$30,000 within the first 3 months.

## Tips On How To Co-Sign Responsibly

Many people who are homeowners today would not have been able to do it without a cosigner. Co-signing on a mortgage loan is one of the biggest favors you can do for your child, relative, or friend, who is looking to buy a home. But co-signing on a mortgage puts a lot...

## Will Higher Credit Scores Pay More On Mortgages Than Lower Credit Scores? No! Here Is What Changed

In the last few days, many headlines circled the internet regarding new mortgage guidelines pushed by the Biden administration. Many have made the mistake that this will result in consumers with higher credit scores ending up paying more on their mortgage than...

Last week we ran an episode on our WhatsApp status about how to get your real mortgage scores for free (you can also watch it on our YouTube channel here). Many mortgage brokers messaged me that they are ready to offer our followers their real mortgage scores for...

## How Long Before Applying For A Mortgage Should I Not Open Or Close Credit Cards?

Buying a house is probably the biggest purchase you will ever make in your lifetime (unless you end up buying buildings in Manhattan). When you’re purchasing a house and applying for a mortgage it is also the most important time for you to make sure your credit score...

## What Will Build My Credit Faster: A Credit Card Or Mortgage?

The title of this post is a question and let me first start with the answer. The answer is credit cards. And not only are credit cards faster, you actually cannot attain a real, solid, credit with only mortgages, ever (even if you have mortgages opened for many...

## Important Mortgage Update: Finally – Fico 10T And Vantage 4.0 Can Be Used

Over the past 20+ years since credit scores were created, there have always been new and improved scoring models coming out and being used when you applied for cars, loans, and credit cards. The only creditors who’ve been sticking with the same old models were the...

## Tricks On How To Instantly Higher Your Credit Score To Get Approved For A Cheaper Rate On A Mortgage

With the current interest rate market, every mortgage applicant is looking for a way to get a cheaper interest rate.  But did you know that one of the biggest factors that determine your interest rate is your credit score? Imagine if you can instantly increase your...

## Which Credit Score Model Is Used For Mortgage Loans?

As discussed in past posts, there are many different scoring models, resulting in different credit scores. When applying for a mortgage, people often like to know up front what their credit score is, in order to have an idea of what loan type and what loan amount they...

## Finally! The HomeBuyers Guide Is Here

Buying a home is a long and arduous process. It can be confusing too. Nevertheless, it’s one of the most exciting journeys you can embark on. Here at HelpMeBuildCredit, we’re all about helping you build your credit. It’s been our passion since day one and we keep...