Know How To Calculate Personal Loan EMI Using Formula in Excel
Whether you are handling a medical emergency, thinking of a home renovation, or chasing any financial goal, you would often require quick access to funds. Personal loans can be the versatile tool you need to cater to these situations. When it comes to loans, equated monthly instalments (EMIs) are important in calculating the total loan cost.
Streamlining the EMI calculation in MS Excel is a universally accessible spreadsheet program that lets you plan your finances precisely. Let us dive into the mathematical journey to explore the wonders of Excel and enhance your overall financial well-being.
Understanding the Basics
Before delving into how to calculate EMI in Excel, let's understand the fundamental concepts. An Equated Monthly Installment (EMI) comprises two essential components: the principal amount and the interest. It is a set monthly payment that simplifies the budget of your loan. For these Excel-based calculations, you will need key information at your fingertips, including the loan amount, interest rate, and loan tenure. With the basics in order, you will be well-equipped to check how the PMT function in Excel can ease your EMI calculations.
How to Calculate EMIs in MS Excel
A straightforward way to compute the EMI is by using the following EMI formula in Excel.
EMI = P × r × (1 + r)n / (1 + r)n - 1
Where:
- P (Principal) = The loan amount
- r (Rate of interest) = Annual interest rate / 12
- n (Number of payments) = Total number of payments (months)
Excel further simplifies the process. Input the following in a selected cell:
=>PMT(RATE,NPER,PV,FV,TYPE)
Let's break down these parameters:
- RATE: The interest rate for the loan (monthly).
- NPER: Total number of payment periods (months).
- PV: Present value, or the loan amount.
- FV: Future value, an optional parameter, usually set to 0.
- TYPE: When the payments are due (0 for the end of the period, 1 for the beginning)
Calculating Personal Loan EMI with the PMT Function in Excel
Calculating the EMI using PMT function in Excel is very easy. It streamlines complex calculations and ensures you have complete control over your financial journey. Here's how you can determine your monthly EMI for a personal loan using Excel:
Example Scenario
Suppose you have taken a personal loan of Rs. 10,00,000 at an annual interest rate of 10.99%, and the loan tenure is 3 years (36 months).
Steps to Calculate EMI
- Open an Excel Sheet: Begin with an empty cell.
- Type the Formula: Start by typing =PMT( in the cell.
- Input the Interest Rate: Divide the annual interest rate by 12 to get the monthly rate. For 10.99% annually, it's 10.99/12 = 0.91% or 0.0091 as a decimal. Type 0.0091,.
- Enter the Total Periods: The loan tenure is 36 months. Type 36,.
- Enter the Loan Amount: Your principal loan amount is Rs. 10,00,000. Type 1000000.
- Close the Bracket and Press Enter: Your formula should look like this: =PMT(0.0091, 36, 1000000). Press Enter.
Result: Excel will calculate your monthly EMI, approximately ₹32,733.
Factors Affecting the EMI Amount
The EMI you pay on a loan is personalised and depends on various factors:
- Loan Amount: A larger loan amount corresponds to higher monthly instalments.
- Repayment Tenure: Longer tenure results in smaller monthly payments.
- Interest Rate: Higher interest rates lead to higher monthly instalments.
- Down Payment: A substantial down payment reduces the loan amount and, consequently, the EMIs
Also Read: Top 5 Factors That Affect Your Personal Loan Eligibility
Why Calculate Your EMIs in Advance?
Calculating your EMIs in advance offers numerous advantages:
- Better Financial Planning: Helps in reducing default risks and managing your finances effectively.
- Compare Rates: This allows you to compare rates from different lenders and choose the best personal loan.
- Customised Loans: This lets you choose the loan amount and tenure based on your repayment capacity.
- Reduced Loan Rejection: Pre-calculating EMIs helps ensure you do not exceed your repayment capacity, reducing the likelihood of loan rejection.
- Improved Credit History: Efficiently managing your loan depending on pre-calculated EMIs helps to build a better credit record.
Final Word
Understanding the EMI calculator in Excel empowers you to make informed financial decisions. By leveraging Excel's PMT function, you can simplify complex calculations and gain control over your financial journey. Whether planning for a significant expense or managing existing debts, knowing your EMI in advance allows for better financial planning and stability.
So, open your Excel sheet today and start calculating your EMIs with ease and confidence! By taking these steps, you can ensure that your financial planning is precise and well-organised, paving the way for a more secure financial future.