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EMIs or Equated Monthly Instalments are the amount that a borrower pays every month throughout the tenor to repay a credit. Each instalment repays a part of the amount due – principal and interest part.
Business loan EMIs is the payment made as per amortisation schedule. The tool used to determine these monthly pay-outs is a business loan calculator.
Usually, the initial business loan EMIs contribute more towards due interest payment as compared to the principal part. In due course of loan tenor, subsequent instalments contribute more towards repaying the principal amount.
You can ease this tedious calculation task with a loan EMI calculator of your preferred lender. This will help you to gather information regarding monthly instalment payments and make an informed decision to meet your financial requirements.
How does a loan EMI calculator work?
A business loan calculator estimates the EMIs for unsecured loans based on the inputs provided by a borrower.
Here are the inputs required in EMI calculation –
- Loan amount
The sanctioned sum is your loan amount on which the interest rate will be applied, which then gets divided into monthly instalments – spread across the loan tenor. Enter your loan amount into the calculator as per your credit requirements. Remember, your monthly outgo must not exceed 40-50% of your net monthly income.
Additionally, make sure to arrange the documents required for a business loan at hand before applying for one.
- Interest rate
Business loan interest rate charged on the principal can be either floating or fixed variant. In case of fixed rates, the interest rate stays uniform throughout the tenor, and every loan instalments are equal. On the other hand, floating rates vary from time to time as per market fluctuations.
For flexibility, opt for a lender like Bajaj Finserv that offers advances both on fixed and floating terms. The company provides loans up to Rs. 30 Lakh with competitive rate of interest.
- Loan tenor
This is the predetermined period for loan repayment. Usually, in the case of business loans, the tenor ranges from 1-5 years. Leading financial institutions and NBFCs offer flexible repayment tenor to borrowers to cater to one’s financial portfolio.
Calculating the monthly interest rate
A business loan calculator operates on 2 arithmetic formulae which involve interest rate calculation and EMI calculation. Financial institutes levy interest at different rates on an annual basis. To calculate your monthly out-go, you need to convert the annual rate into a monthly rate.
For this, you need to divide the annual rate of interest by 12. So, if you are charged at 20% interest per annum, it will yield 1.66% as a monthly rate. This implies that your EMIs will bear this interest rate throughout the loan tenor. Thus, it is advised to compare various lenders for obtaining the business loan interest rate available in the market.
Formula to calculate EMIs for business loans
To calculate business loan EMIs, you are required to put in the loan amount, suitable tenor and the interest rate on business loan charged by your lender. The loan tenor must be converted into months before you substitute it in the formula: EMI = [P X R X (1+R) ^ N] / [(1+R) ^ N-1].
However, manual calculation is time-consuming and complex. Therefore, it is advised to calculate EMIs using a business loan EMI calculator of your preferred lender. Using this business loan calculator, you can not only save time but also achieve accurate results.
The business loan EMI calculator helps you to estimate the EMI amounts in advance, and you can fix your monthly budget accordingly. Additionally, a loan calculator helps one to avail the best EMI plan that matches your cash cycle.