Many times, people are unaware of various critical aspects of the loan they are about to take. The questions they lack answers to are not some convoluted questions related to a legal or procedural technicality associated with the loan, but simple, mathematical questions that they could have easily found answers to had they used a loan or EMI calculator app. Simply put, a personal loan EMI calculator is one of the most underappreciated tools of the trade. If you are looking to get a personal loan from an app, then here are some reasons why you should make the best of its in-built calculator tool.
- Helps you identify your borrowing capacity: This is the most basic and perhaps the most important use of a loan calculator built into a quick cash loan app. By putting in the income amount and the current liabilities and expenses, you can easily find out how much money you have left to service the loan. Based upon this figure, you can find out your ‘borrowing capacity,’ which is how much loan you can take without creating any significant impact on your other financial commitments.
Pro Tip: Always remember that knowing your borrowing capacity helps you make wise borrowing decisions.
- Helps you identify the loan amount you need: This might not seem like an obvious use of a personal loan EMI calculator but in reality, it will help you to identify how much money you need as the loan amount, as opposed to how much money you want, and you can apply for the loan accordingly. Let us say, you want to take a loan of Rs 1 lakh but your income does not allow you enough scope to service this debt. The calculator will allow you to try different loan amounts till you reach the amount which you can pay off easily and which also actually fulfils your need, thus, preventing you from overborrowing.
Pro Tip: Always borrow the amount you need, not the amount you want.
- Helps you identify the EMI you will be paying: This is perhaps the most obvious use of a personal loan calculator app. Let us say, you want a loan of Rs 1 lakh for 18 months. The calculator will help you identify how much money you will have to pay every month as EMI, and will also help you assess if it will fit your monthly budget. If the EMI is within your budget, all is good, otherwise, you will have to tweak things around.
Pro Tip: Even after scoping the EMI in your budget, leave some money for emergency expenses.
- Helps you decide the best repayment period: Carrying on from the previous example, say you need Rs 1 lakh but 18 months period for repayment does not suit you. In such a situation, the EMI calculator can help you check if extending the loan period to around 24 months can reduce your monthly outflow. Thus, by trying different repayment period options, you can find out the best repayment period for yourself.
Pro Tip: You can use the same calculator to find out what will happen upon reducing your repayment period.
- Helps you calculate the interest amount: A quick cash loan app’s EMI calculator can help you calculate how much amount you will be paying as interest. You can find out the monthly as well as annual interest amount. You can also check the cost of capital by calculating how much money has been paid as interest over the entire duration of the loan.
Pro Tip: Remember to add any processing fees to the total interest to find your actual cost of capital.
- Helps you decide the scope and advantages of prepayment/part-payment: With an EMI calculator tool, you can easily find out the scope, impact and savings by making a part-payment or a prepayment on your loan amount. Making such payments can reduce the EMI amount or the loan duration, as per the option chosen and lender terms and conditions. Pre-payments and part payments are good for your overall financial health. So, use a calculator to see how to best manage the money.
Pro-Tip: Pre-payments in part and full boost your credit score as well.
Remember, using an EMI calculator can get you many data points. It will help you decide which lender will be the best for you to borrow money from. While several factors can help you decide which app to borrow from, a calculator will provide you with the most significant data points.
By using a calculator, you will have ready inputs that can help you see how the financial aspects of different lenders stack up against each other, making your choices much simpler and more data-driven than being a decision based on incomplete information and insufficient awareness.