EMI or Equated Monthly Instalment is a fixed payment that the borrower pays to the financial institution towards his business loan account. He needs to pay the EMIs until the business loan amount is fully repaid. EMI essentially comprises of two important components, i.e., the principal amount borrowed and the interest cost.
The cumulative sum of the principal amount and the interest cost is divided by the total number of the months for which the business loan is availed. The result is the EMI, which has to be paid every month to the lender. Notably, the interest cost decreases, and the principal amount increases after the payment of the first few EMIs.
In the fixed interest rate, the interest is charged at the fixed principal amount. And in the reduced interest rate, the interest rate is charged on the reduced principal amount after the payment of every EMI.
Using a Business Loan EMI Calculator
Loan EMI calculator is easy and straightforward to use, and it requires the user to input several values needed, after which the EMI formula is applied. Notably, the values are important to generate EMI instantly.
- Principal Amount: the principal loan amount is the actual amount that is borrowed from the business loan provider – the interest rate is charged on the amount borrowed. It is worth mentioning that a high loan amount results in high EMIs.
- Rate of Interest: the interest rate is the rate at which the interest is charged on the principal amount. It can be reducing, fixed, or floating rates of interest.
- Loan Tenure: it is the total number of months (or years) in which the loan amount has to be repaid entirely. EMI is high if the tenure is short and vice versa.
How to Use an EMI Calculator?
A business loan EMI calculator helps you know the monthly installments you have to pay, thereby helping you plan your repayment with ease.
The loan EMI formula is as follows:
EMI = [P x R x (1+R)n] / [(1+R) ^ (N-1)]
P = Principal loan amount
R = Interest rate
N = Loan tenure
To use the loan calculator, the user needs to enter all the values and click on ‘Calculate EMI.’ The calculator will do the work and show the EMI to be paid.
This formula helps you to predetermine the amount need to pay at the end of every month, helping you to opt for a loan amount that matches the short-term or long-term plans of your business and thus, facilitating your cash resources planning.
What Are the Benefits of EMI Calculators?
When you apply for a business loan, you can take help of an EMI calculator for the following benefits it has on offer:
- Convenience: being an online product, EMI calculators are absolutely handy. They are easy to use and can be accessed anytime, anywhere. By entering the necessary three variables, EMI can be calculated conveniently.
- Accuracy: if you calculate the EMI manually, there are chances that you may commit several errors. However, these errors are minimized when an EMI calculator is used. It saves you from unnecessary problems while calculating EMIs.
- Different Calculators: several kinds of EMI calculators are offered by loan lenders, depending on the loan type a borrower has availed. Notably, every calculator comes with some inbuilt specializations to cater to specific needs.
- Graphical Representation: online EMI calculators display the calculation graphically – of the loan amount paid, remaining loan amount, etc. It makes it easier to comprehend and visualize facts and figures and accordingly take the course of action.
- Decision Making: EMI calculator provides an additional advantage of helping the borrowers in decision making. You can predict the EMI to be paid against the business loan amount and its other attributes. MSMEs can use this feature for their benefit to decide the best loan amount that they can afford.
Factors That Affect the EMI Amount
- Change in Tenure: any change in loan tenure can affect the EMI adversely. As said above, shorter loan tenures lead to high loan EMIs and vice versa.
- Loan Prepayment: prepayment of the loan before its end tenure leads to a prepayment penalty. However, several lending institutions are operating in the market that does not charge any prepayment penalty after six months. You can avail of a loan from them if you feel there are chances that you will prepay your loan.
- Flexible Repayment Tenure: variable loan tenures are also available. You can choose any loan tenure that suits your pocket. In case you feel EMI is slightly high, you can choose a longer tenure to bring down the EMI amount.
A plethora of advantages come with a business loan EMI calculator. It has made a solid reputation among business entities as well. An EMI loan calculator can be termed as a savior for business owners who needs to know the EMI they will have to pay for the loan they want to apply. Additionally, a loan EMI calculator saves time and effort and can be used for all types of business loans.
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