How to calculate the interest charges on your loan?
The astounding number of loan offers today in the market can make you very confused. Taking a loan is not an easy task as you have to factor in various parameters like your monthly budget, repayment capability, and emergencies. One of the essential components of a loan is interest.
Do you know how much interest you will have to pay for the loan you have taken? How to choose the best loan that suits your needs and affordability? These factors will help you narrow down to the most suitable loan. It will help you learn how much the loan will cost you so that you can make a well-informed decision.
How to Calculate the Interest on a loan?
There is a standard formula to calculate the EMI (Equated Monthly Installment), which is the amount you have to pay every month as a repayment toward the loan taken. The EMI includes both the principal and interest amount.
Some of the easy ways to calculate the interest on your loan,
Online Fintech sites
There are so many loan aggregator sites available in the market, like Fincover, where you can easily calculate the interest rates for your loan. You need to input the following details in their EMI calculator.
- The loan amount you wish to borrow
- The interest rate charged
- Bank Websites
Many banks have an EMI calculator that will allow you to check the monthly installment you have to pay towards the loan. It will give a detailed breakup of the interest rates and principal amount that you have repaid
The third method is to calculate the monthly EMI using a calculator of your own
The formula for calculating the EMI is
E = P*r*(1+r) ^n /[(1+r)^n -1]
E is the EMI
P is the principal amount towards your loan
r is the rate of interest
n is the loan tenure
With high tenure, you will pay higher interest charges. If you opt for a loan with a lower term, you will pay lower interest charges.
During your initial repayment tenure towards the loan, much of the EMI goes towards paying the interest charges. The principal amount is covered in the latter part of your loan tenure as the interest charges would have been already collected