Education costs are rising with each passing year, especially the expense for higher studies. As per a survey, 32% more students were granted education loans between 2017-18 when compared to the same period in the previous year. Nevertheless, before one proceeds to apply for such a loan, he/she must consider the resulting repayment burden from the said credit.
You can do so with the help of an education loan calculator. Borrowers can quickly determine the right amount of EMI that they can afford as per their monthly income and expenses.
Following is a process to calculate education loan EMI-
How to calculate EMI?
EMIs depend on three parameters of a loan, these are-
Depending on the disciplines and place, individuals need to determine the education loan amount. To minimise the interest payments, individuals can instead finance their education with a loan against property. Being a secured loan, such options often benefit the borrower greatly by reducing their repayment burden
2. Rate of interest
Interest rates tend to differ from one financial institution to the next. Looking for lenders that offer loans at minimal rates is the best discourse for long-term financial gains.
3. Repayment tenor
Repayment tenor is the pre-decided time given by the financial organisation to pay back the principal sum, along with accumulated interest. Moreover, longer tenor helps to keep the EMIs low, but it acquires higher outstanding.
EMI value changes if any of the above-said variables change. Furthermore, other than the education loan calculator, individuals can also calculate education loan EMI by a mathematical formula.
EMI = [P X R X (1+R)^N] / [(1+R)^N-1]
In this formula, P = Principal amount, R = Rate of interest, N = Repayment tenor. Now, as EMIs are monthly payment options, the tenor needs to be converted into months while calculating. For example, if the education loan amount is Rs.20 lakh at a 9% rate of interest with 2 years of repayment tenor, then the EMI will be-
P = Rs.20 lakh, R = 9%, N = 2 years or 24 months
EMI = [20,00,000 X 9/100 X (1+9)^24] / [(1+9/100)^24-1]
How to use EMI calculator works
Education loan calculator is a simple and convenient tool that helps borrowers avoid the lengthy process, listed above. These EMI calculators comprise 3 fields where you need to enter a loan’s principal, repayment tenure and interest rate. Using the online tool, one can understand how these three factors affect the monthly liabilities for a borrower.
Importance of EMI calculation
Individuals need to fulfil the responsibility of timely repayment after borrowing credit. Default payments affect the credibility of the borrower negatively. Thus, it is important to calculate EMI even before knowing how to apply for an education loan so borrowers can plan their monthly expenses and determine the EMI amount.
- Financial planning
Education loan calculator helps to assess the EMI amount beforehand. Thus, it allows borrowers to anticipate all possible financial provisions and pay the EMIs on time.
- Decide loan amount and repayment tenor
With the help of an education loan calculator, borrowers can calculate the EMI of various education loan offers. By changing the principal, tenor, and rate of interest, individuals can opt for the feasible EMI option depending on their financial strength.
So, an education loan calculator is a quick and simple tool that can determine several combinations and help borrowers to fix the right amount of EMI. It also provides insights into the loan amount, different charges and tenor. Such online tools can also help you compare loan against property vs education loans.