On availing of a personal loan, you are expected to repay the principal amount along with a certain percentage as interest levied by the loan provider. The payment of this amount is spread throughout the tenure of your loan.

The total interest payable throughout the tenure is an important factor to be taken into consideration because it can significantly increase the total sum payable to the lender.

How To Calculate Interest Rate On Personal Loan?

EMI is calculated using the below formulae: - 

EMI = P x R x (1+R)^N / [(1+R)^N-1] 

Here, 

P - Principal
R - Rate of Interest (Monthly)
N - Loan Tenure

The Interest Rate is calculated monthly. If the ROI is 6%, then the calculation is 

R - 6/12/100 = 0.005

Here is a simplified example. 

If a loan amount of INR 20,00,000 at an annual ROI of 6% for 20 years, then the EMI is: 

EMI = 20,00,000 * 0.005 * (1+0.005)240 / ((1+0.005)240-1) = INR 14,329

Therefore, the total payable amount is INR 14,329 * 240 = INR 34,38,960. The Interest amount is: INR 34,38,960 - INR 20,00,000 = INR 14,38,960.

`
50,000
2,50,000
25,00,000
%
11.99%
11.99%
36%
Months
12 Months
36 Months
60 Months

Your Calculated EMI*

 8,302

How to Calculate Interest Component on Personal Loan EMI?

If you would like to know the interest component of your EMI for a particular month/installment, you can use the IPMT formula in Microsoft Excel. The formula is as follows

=IPMT(rate, per, nper, pv, [fv],[type])

Where

rate = the rate of interest. Thus, if you are being charged 12% annually, you need to enter 12%/12 for this field if you are calculating on a monthly basis.
per = the instalment or month for which you are calculating the interest component
nper = the overall loan tenure (in terms of number of EMIs)
pv = principal / loan amount
[fv] = this is an optional field and refers to the desired cash balance at the end of the loan tenure. Typically, this is set to 0
[type] = this can be 0 or 1 depending on whether the payment is being made at the beginning or end of the month

Here’s a working example for your reference

Month

Loan Balance

EMI

Interest

Principal

Revised Balance

1

5,00,000

11,122

5,000

6,122

4,93,878

For subsequent months, the interest will be calculated on the new loan balance (also known as principal amount outstanding). The new loan balance is calculated as follows:

Loan paid - Principal already paid

The total interest payable is the sum of interest paid over the tenure of the loan.

What are the Factors Used to Calculate Rate of Interest?

While the Central Bank regulates the rate of interest, the rate of interest charged by different loan providers is calculated taking into account different factors like:

  • CIBIL Score

This score is a reflection of your creditworthiness. The minimum CIBIL score for availing a personal loan varies according to the internal policies of the lender.

  • Principal Amount

Your chances of obtaining a larger amount are higher for lenders with a good repayment history.

  • Repayment and loan tenure

The shorter the repayment tenure, the lesser the total interest to be paid.

It is advisable to have a clear idea about the terms and conditions and the interest payable to be able to shortlist a provider best suited to your needs. Log into the website of a loan provider, enter the details required in the personal loan calculator to help you calculate the interest and monthly installments. Make sure to invest adequate time on researching offers provided by different providers since a loan, like any other financial decision, causes a deep impact on your financial health.

Calculate Personal Loan Interest

Reasons to buy

You can take our personal loan for a variety of reasons.

Wedding Expenses

Wedding Expenses

Higher Studies

Higher Studies

Exotic Vacations

Exotic Vacations

Hobbies

Hobbies

 

Related Questions

Here are some articles which could help you understand us and our products better. Do share your comments and let us know what you think!

   
What Is The Maximum and Minimum Duration For Personal Loan?
Personal Loan

What Is The Maximum and Minimum Duration For Personal Loan?

Curious to know the maximum and minimum duration for personal loan? Read our blog to find out and get all the answers you want.

Co-Borrower Vs Co-Signer of Personal Loan- What's The Difference?
Personal Loan

Co-Borrower Vs Co-Signer of Personal Loan- What's The Difference?

Are you applying for a personal loan as a co-signer or co-applicant? There are major differences between these two. Learn more!

Difference Between Flexi Personal Loans & Term Loans
Personal Loan

Difference Between Flexi Personal Loans & Term Loans

A comparison of Flexi Personal Loan & Term Loan on the basis of loan amount, rate of interest, structure of EMIs & fund disbursal.

Customer Experiences

Mr. Mahendra Kothari

M/S Divya Textiles

I have had a very fulfilling experience with Fullerton India. Right from the time when I had taken the loan; to any information I required, the executives have always responded promptly and have resolved my queries.

Ms. Deepamala Gorwani

M/S Manan Agency

While taking a loan from Fullerton India, sales executive collected all the required documents in one go and I received the loan amount on time. This was quite contrary to my previous experiences of taking up loans from other companies.