Personal Loans can be utilised in any situation; whether you require money to expand your business or if you’re running low on cash. However, you need to understand how to calculate EMI on your Personal Loan so that you can plan your finances better.

How EMI Works?

EMI stands for Equated Monthly Instalment factor. A monthly instalment is a fixed payment made by a lender to a borrower at a specified date every month. EMIs are used to partially pay off both the principal and interest on a loan each month so that over a specified time period, the loan is paid in full. If you want to take a break from paying your EMI, check out Bajaj Finserv. They provide you with a 3 month EMI holiday.

The Break-Up

You take a loan and pay the contracted EMI amount every month in order to clear that loan. A part of your EMI goes towards paying the interest on your loan, and the rest goes towards paying for your actual loan (principal) amount. In this way, you are reducing the amount you borrowed, and as your loan reduces, the interest paid on it reduces as well. Although your EMI is usually fixed, it’s internally split into principal and interest repayments.

What the Banks Do?

During the initial time of repayment, the interest on your loan forms most of your EMI, and this amount decreases as time goes on. The principal or actual loan amount starts off comparatively low, but as the months go by, it starts to form a larger part of your EMI payment.

Here’s an Example

Let’s take a simple example of EMI break ups on Personal Loans. Let’s say that your monthly EMI is INR 10,000 and you have to pay this sum for the next 12 months. This is a rough estimate of how your EMI payment would be split between interest and principal.

Month Interest Payment Principal Payment
Month 1 4100 5900
Month 4 3500 6500
Month 7 3000 7000
Month 9 1500 8500
Month 12 300 9700

As you can see, your interest consolidates a massive portion of your EMI during initial payments and gradually decreases as the loan tenure nears completion. Taking a bigger Personal Loan means that you’ll have a higher EMI, but only a small portion of that amount will actually go towards repaying your Personal Loan. in the initial stages. If you avail the services of Bajaj Finserv, you can enjoy the benefits of taking a Personal Loan, such as, no limit on prepayments up to 6 times a year and you can take a loan of up to 25 lakhs! You can also calculate your EMI using their Personal Loan EMI calculator.

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