Your financial plan and stability should be balanced, in fact, what you earn should, ideally, outweigh what you spend. This surplus income can be spent, deposited, or invested in exciting prospects which could multiply your savings exponentially. But what happens if you face an unforeseen emergency?
A lot of circumstances often call for immediate cash at your disposal. Even expenses like home renovations, an impromptu vacation, or a lifestyle purchase could require you to shell out a large amount of money at short notice. If you’ve saved well enough all along, chances are that you might be able to pull it off.
But here’s the question—would utilizing your savings be a good idea?
If the answer to the above is no or if you didn’t have any savings to begin with, the only viable option will be to turn to a Personal Loan. The money is instant, and can be repaid in ample time, giving you the option of building your savings. But before you make a hasty decision to sign up for one without another thought, you must plan well so that the loan doesn’t become a burden. There are certain instruments that you can use online to help you do just that. But, before we get to that, here’s a little more information on Personal Loans.
What is a Loan?
A Personal Loan essentially involves borrowing money from a financial institution, and repaying it with a rate of interest. The capital from such a loan can be utilized as per your discretion. Once you receive the loan amount, you start repaying it at regular intervals in the form of EMIs. The EMIs will add up to include the interest and the principal which will both be cleared by the end of the loan tenure.
If you miss an installment or default on the loan you might end up hurting your prospects of availing loans in the future. In some cases, the financial institution may even take legal action which could lead to serious repercussions.
Thankfully, there are calculators to help you plan your loan and dodge errors, helping you keep yourself clear of any financial and legal issues.
Personal Loan Eligibility Calculator
This calculator helps you figure out whether you’re eligible to avail of a Personal Loan from a financial institution.
How does the Calculator Figure out Eligibility?
The foremost requirements from any financial institution for a Personal Loan will be your age and income. The requirements differ slightly from lender to lender, and most of them will require you to draw a specific salary from a legitimate employer.
The Calculation Process
The calculation is done after you fill in a few fields. The first will be the date of birth, followed by your city of residence, the name of your employer, net salary (yearly salary after all deductions), details of any existing loans (if any), and the combined dues left to pay for your credit card. Apart from these, you’ll also have to mention if you have any existing loans.
Personal Loan EMI calculator
A Personal Loan EMI calculator gives you an approximation of the amount you’ll have to pay every month in order to clear the debt. The Equated Monthly Installment (EMI) is the a portion of the total money you borrowed, plus the interest, that must be repaid to your lender by the end of the tenure.
The EMI Calculator Fields
EMI is calculated using the following formula:
Where,
E = Equated Monthly Instalment (EMI)
r = Personal Loan interest rates calculated on a monthly basis
P = Principal loan amount
n = Loan tenure
The Final Calculation
EMI calculation will require you to adjust the slider or fill the blank fields with the rate of interest, tenure (in months), and principal amount. The calculator processes the inputs, utilities the formula given above, and gives you the resulting EMI.
Loan Prepayment Calculator
Prepayment is a facility provided by some lenders that allows you to pay off a large of the loan at one go. This feature is especially beneficial if you have idle funds or savings lying around. The funds you possess act as the prepaid amount and help you save on interest payments.
The Working of Prepayment Calculators
Prepayment calculators require the same fields mentioned in the final calculation for EMI calculators—principal amount, tenure, and interest rate. Once you fill these up and your EMI is calculated, you must enter the prepayment amount which must be at least three times the EMI amount. Upon successful calculation, you get a revised EMI, which will be much lesser than the original, and the revised tenure.
Loan Foreclosure Calculator
Foreclosure is a feature that allows you to completely pay off the debt before the end of tenure. Instead of paying in installments, you pay at one go in order to clear the balance. Foreclosing the loan is beneficial as it frees you from the liability of being in debt to a financial institution. Before you sign up for a loan with a lender, you should ask if they charge any penalties for early settlement. Usually, financial institutions charge 1-4% of the payable amount. However, there are some who do not impose any penalties.
How do you use the foreclosure calculator?
The calculation is based on the principal, tenure, and interest rate combination. Once your EMI is calculated, you enter (or adjust the slider) the number of paid EMIs, and the month of foreclosure. The foreclosure month is the period when you decide to foreclose the outstanding debt. For instance, if you take a loan of Rs.3 lakh for 3 years (36 months) at 10% rate of interest, and decide to foreclose on the 5th month after paying EMIs for 4 months, the foreclosure amount (final debt clearance) will be Rs.2,70,919.
Utilizing these calculators is an integral part of better financial planning. Important as they are, you must never turn away from seeking help from financial experts because they can help you take an informed decision.
Conclusion
Planning your finances is crucial when you’re looking to save for emergencies. If you’ve applied for a loan, read on to know about its sanction and disbursal process.
Images: ” Thinking on Personal Loan, personal finance conceptual /Shutterstock.com“
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