How to use Financial Blink's Loan calculator?

EMI is short for Equated Monthly Instalments. It’s the amount payable to the bank/NBFC every month over a predetermined period of time by the borrower, as repayment towards a loan. It comprises the interest on the balance outstanding as well as a portion of the principal amount borrowed. The interest component of the EMI is larger during the initial months, and gradually reduces with each subsequent payment. And vice versa.

A loan repayment schedule is a table that shows the payments to be made every month/year for the entire duration of your loan. It also shows the yearly interest and principal components payable. During the initial loan period, a large portion of each payment is devoted towards the interest amount. And with the passage of time, larger portions of each payment will pay down the principal amount. The repayment schedule also shows the intermediate outstanding balance for each year that will be carried over to the next.

Floating Rate EMI Calculation takes into consideration two opposite scenarios, i.e., optimistic (deflationary) and pessimistic (inflationary) scenarios. Two of the three components required to calculate your EMI are under your control. I.e. Car Loan amount and the loan tenure. But the rate of interest is decided by the banks/NBFCs based on rates and policies set by RBI. So, as a borrower, you should consider the extreme possibilities of increase and decrease in the rate of interest and calculate how much would be your EMI under these two conditions.

• Optimistic (deflationary) scenario:Assume that the rate of interest comes down by 1% - 3% from the present rate. Consider this situation and calculate your EMI. In this situation, your EMI will come down or you may opt to shorten the loan tenure.
• Pessimistic (inflationary) scenario: In the same way, assume that the rate of interest is hiked by 1% - 3%. Is it possible for you to continue to pay the EMI without much struggle? Note: Even a 2% increase in rate of interest can result in a significant rise in your monthly payment for the entire car loan tenure. Such calculations will help you decide how much EMI is affordable, how long your loan tenure should be, and how much you should borrow.