Personal Loan EMI Calculator

A personal loan, which is also known as a consumer loan is the amount of money an individual borrows for personal needs including making investments in a company. Personal loans can help one finance most major purchases, from an engagement ring to home repairs often at a lower interest rate than paying with a credit card.

In case someone has a huge debt on their credit card, then that person can avail of a personal loan to consolidate the balances and lower the overall APRs (Annual Percentage Rate). APR is the cost that one pays each year to borrow money, including fees, expressed as a percentage.

All personal loans have three common elements:

• Evidence/proof of the debt (promissory note)
• An amount borrowed (principal)
• The cost of borrowing (interest rate)

The promissory note gets retired after all the repayment terms of the personal loan are met. The lender is liable to use the legal system in case the loan payments are not made as agreed.

Things to be considered while taking up Personal Loans

• No origination or signup fee: None of the lenders on any best-of list charge borrowers an upfront fee for processing the loan.

• Fixed-rate APR: Variable rates can go up and down over the lifetime of the taken loan. With a fixed rate APR, one can lock in an interest rate for the duration of the loan’s term, which means the monthly payment won’t vary, making the budget easier to plan.

• Flexible minimum and maximum loan amounts/terms: Each lender provides a variety of financing options that can customized based on one’s monthly budget and how long one needs to pay back the loan.

• No penalties for early pay-offs: The loan lenders do not charge borrowers for paying off loans early.

• Streamlined application process: We consider whether lenders offer same-day approval decisions or a fast online application process.

• Customer support: Every loan is provided with customer support service either via telephone, email or secure online messaging. Lenders are even entitled to provide an online resource hub or advice center that can help educate oneself about the personal loan process and finances.

• Fund disbursement: The loans deliver funds promptly through either electronic wire transfer to your checking account or in the form of a paper check. Some lenders even offer the ability to pay the respective creditors directly.

• Autopay discounts: It has been found that the lenders that reward enrolling in autopay lower the APR by 0.25% to 0.5%.

• Creditor payment limits and loan sizes: Personal loan lenders provide loans in an array of sizes from $500 to $100,000. The lender advertises its respective payment limits and loan sizes. By completing a preapproval process one can get/have an idea of what interest rate and monthly payment would be for such a desired range of specified amount.

How is a personal loan calculated?

Personal loans are generally a type of closed-end credit having fixed set monthly payments over a predetermined period (e.g. three, four, or five years). Interest rates on personal loans are expressed as a percentage of the amount one borrows (principal).

In order to have personal loans, banks need to first borrow the money themselves, either from other banks or from their customers' deposits. The interest rate on a personal loan reflects how much it costs a bank to borrow money in addition to the inherent risk of lending money in case of no guarantee to be repaid.

Three Important Factors determining the interest rate on a Personal Loan are as follows:

• The borrower's credit score: The borrowers who have high credit ratings tend to get better deals because they have a lower risk of having any default. Lenders are required to consider the borrower's employment status and income since these factors affect the likelihood of repayment while borrowers having low income, or a history of missed payments tend to get the highest interest rates as uncertain that full payments will be ever made.

• The duration of the loan: Lenders make more money from long-term loans compared to short-term ones because the debt has more time to accrue interest due to which lower rates are incurred on longer-term loans. Some lenders may even charge a prepayment penalty for borrowers who pay off their loans too quickly.

• The cost of borrowing: Borrowing of money from one another is done at an interest rate that is based on the federal funds rate. This cost in turn is then passed on to the consumer. In case the cost of borrowing money is high, the interest rates for personal loans will be even higher.

• Secured vs unsecured loan: Most personal loans are unsecured which means the loan isn’t backed up by any asset that the lender can take. An example of an unsecured loan could be money one borrows to go on vacation. Unsecured loans have higher interest rates reflecting the additional risk the lender takes. Secured loans are backed up by something of value. The thing one offers to assure the lender to repay the loan is called “collateral’. The lender takes less risk in the case of a Secured Loan.