A Guide on How to Calculate Your Personal Loan Repayment Cost

Before you avail of a personal loan, it is crucial to have a repayment plan in place. The cost of a loan is based on several factors, and you should know all about them. Knowing this information helps you manage your loan better and avoid the consequences of missing EMI payments.

In general, the cost of the loan can be broken down into three main parts. The outstanding principal, the interest payable, and the fees and charges applicable. Combined, it equates to the cost of borrowing, which is why it isn't wise to consider just one.

Thankfully, digital tools allow you to calculate your monthly outflow towards loan repayment accurately. This is especially true since you will likely avail of personal loans online, and tools like this help streamline the experience.

However, it still helps to know how to go about the process. So, read on to know how to calculate your personal loan repayment amount.

How to Calculate Personal Loan Repayment Cost?

As mentioned above, you can easily avail of personal loans online. However, before applying for this loan, you must be aware of the repayment cost of a personal loan.

To calculate your obligation towards a personal loan, use the following mathematical formula:
M = P (r (1+r)@n) / ( (1+r)@n -1)

Here,
M is your monthly obligation
P is the principal amount
r is the monthly rate of interest (R/12, where R is the annual interest rate)
n is the loan tenure (in months)

Let us understand this with an example. Consider that you have availed of a personal loan of ₹2 Lakhs for a period of 12 months at an interest rate of 12% p.a. Now the monthly rate of interest (r) would be:
r= R/12 = 10/12 = 0.833%

Now, the monthly cost of repayment of your personal loan would be:
M= P (r (1+r)@n) / ( (1+r)@n -1) = 2,00,000 (0.833 (1+0.833)@12) / ( (1+0.833)@12 -1)
M= ₹17,583

How to Calculate the Repayment Cost of Personal Loan Online?

While you can use the mathematical formulas provided above to determine the cost of your loan repayment, these may require a lot of complex calculations. It may not just be tiresome but also prone to manual error.

Hence, it is advisable to use a Personal Loan EMI calculator to determine the EMI amount you will have to pay each month. But before you understand how to use this tool, it is essential for you to determine which type of loan calculator is to be used.

These include:
Interest-only Loans
Interest-only loans are those lending options that require you to pay only the interest component of your loan for a specified time. Once this period ends, your loan is turned into an amortised loan, where you have to pay a part of your principal amount in addition to interest charges.

Amortised Loans
An amortised loan, on the other hand, where the loan is repaid as per a predetermined amortisation schedule. Each EMI amount paid towards the loan repayment is split and used to repay parts of the principal amount and the interest charges.

Once you have determined the type of your personal loan, you can use the appropriate calculator to compute your personal loan repayment cost.

Here is how you can use this calculator to get the cost of repayment of your personal loan online:

• Visit a website that offers a Personal Loan EMI calculator facility
• Enter the loan amount, loan tenure as well as the applicable interest rate
• Click the calculate button to get the EMI amount you need to pay, the total interest charges, and the total cost of repayment

This is how you can calculate the cost of repayment of personal loans online in just three simple steps with this online tool. Not just that, it also presents a loan amortisation schedule that helps you track your repayment record and budget accordingly.

With the help of this EMI calculator, you can get a personal loan eligibility check and approach the lender only if you meet those eligibility criteria. Moreover, you can compare the cost of borrowing from different lenders. It also lets you make an informed decision to choose a lender offering lending terms best suited to you.

Factors that Influence the Cost of Your Personal Loan Repayment

Here are some of the key factors that influence the cost of your personal loan.

Credit Score
As personal loans are unsecured, lenders rely on your CIBIL score in order to determine your ability to repay. If your credit score is high, the lender may consider you as a low-risk applicant, and provide you with lower interest rates. The lower rates of interest then translate into lower costs of repayment and vice versa.

Interest Rates
Interest charges are the most important component that determines the cost of your borrowing. If the interest rates are higher, the interest payable will also be higher, which will subsequently impact the cost of loan repayment. The total repayment cost will be reduced if you avail of a loan at more competitive rates.

Repayment Tenure
The repayment tenure is another factor that impacts the repayment cost of your personal loan. If you choose a longer tenure, you will have to pay interest on the principal amount for a longer period of time. Hence, the cost of your loan repayment will be higher when you choose a longer tenure as compared to short-term loans.

The opposite is also true, wherein the interest outgo is lower on short-term loans. However, in this case, the monthly outgo is higher, which equates to higher EMIs. From a cost POV, the short-term tenure is the better option as it lowers the cost of borrowing. However, your monthly outgo is much higher.

In order to make an informed decision about which lending option is better, you need to compare the cost of borrowing. It makes sense to calculate your obligations beforehand so that you do not default on your loan repayments.

Remember, missing payments will negatively impact your credit score and your chances of getting a loan in the future. Not just that, but it also puts your finances under strain, which may push you into debt traps, later down the line.