About the Personal Loan EMI
A personal loan is an unsecured loan that can be used for almost any purpose, which is why it costs more than a secured loan. This personal loan EMI calculator shows the monthly instalment, the total interest and the total repayment, and then adds the processing fee to show the real cost of borrowing and the effective annual rate you are paying.
Borrowers use it to compare offers from banks, NBFCs and lending apps, where a lower headline rate can be offset by a higher fee. It is also useful for small business owners who use personal loans for working capital or urgent purchases, and need to know whether the returns from the business will comfortably exceed the full cost of the money.
The EMI depends on the amount, the interest rate and the tenure. The rate you are offered depends largely on your credit score, income and employer or business profile. The processing fee is normally deducted from the amount disbursed, so you receive less than you pay interest on. That is why the effective rate including the fee is higher than the quoted rate, especially on short tenures.
How to use it
- 1Enter the loan amount, the annual interest rate and the tenure in years.
- 2Enter the processing fee as a percentage of the loan amount.
- 3Read the EMI, the total interest and the total payment.
- 4Check the amount you actually receive, the total cost of borrowing and the effective annual rate including the fee.
How this is calculated
EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1] P = loan amount, r = annual rate ÷ 12 ÷ 100, n = number of months. Processing fee = P × fee %. Total cost of borrowing = total interest + processing fee. The effective annual rate is 12 × the monthly rate at which the EMIs, discounted back to today, equal the amount actually received (P − fee).
Frequently asked questions
How is a personal loan EMI calculated?
It uses the standard reducing-balance formula applied to the loan amount, the monthly interest rate and the number of instalments. Interest each month is charged on the outstanding principal only. The processing fee does not change the EMI, because it is charged separately or deducted from the disbursed amount.
What is the processing fee on a personal loan?
It is a one-time charge for handling the application, expressed as a percentage of the loan amount, and it varies widely between lenders and offers. GST is charged on the fee. It is usually deducted from the loan before disbursal, so compare the net amount you will receive as well as the interest rate.
What does the effective annual rate including the fee mean?
It is the interest rate that equates the amount you actually receive, after the fee is deducted, with the EMIs you repay. It reflects the true cost of the loan in a single figure. Regulated lenders disclose a similar annual percentage rate in the Key Fact Statement, which you can compare with this estimate.
How can I get a lower personal loan interest rate?
A strong credit score, a stable income, a low level of existing debt and a good repayment record with the lender all help. Compare several lenders, including your salary-account bank, and look at the rate and the fee together. Borrowing only what you need, for a shorter tenure, also reduces the total cost.
Can I prepay a personal loan?
Most lenders allow part-prepayment or foreclosure after a minimum number of EMIs, and many levy a charge on fixed-rate personal loans. The terms vary, so read the loan agreement before signing. Prepaying early in the tenure saves the most, because that is when the interest portion of each EMI is highest.