There are a few things everyone knows about personal loans. For example, When you take out a personal loan, you are required to repay the principal amount as well as a set percentage of interest charged or HDFC personal loan interest rates by the loan provider. The payment of this amount is spread out throughout the tenure of the loan you selected at the time of getting a personal loan. The total interest which includes interest rates payable over the term is a key issue to consider because it can dramatically raise the total amount owed to the lender. If you are taking out a personal loan for the first time, you would want to know important aspects that indirectly or directly affect the sum you owe to the bank. You can use the HDFC personal loan EMI calculator to calculate the EMI component.
How Do You Calculate Personal Loan Interest Rates?
The following formulas are used to determine EMI in the HDFC personal loan EMI calculator: – P x R x (1+R)N / [(1+R)N-1] In this, P is the principal, while R denotes the monthly interest rate.
N – Loan Duration
The interest rate is calculated on a monthly basis. If the ROI is 6%, the formula would be R – 6/12/100 = 0.005.
Here’s a more simple example.
If you are planning to take a loan of INR 20,00,000 and is taken out with an annual ROI of 6% for 20 years, the EMI using the HDFC personal loan EMI calculator would be calculated as follows:
EMI = 20,00,000 * 0.005 * (1+0.005)240 / ((1+0.005)240-1) = INR 14,329
As a result, the total sum payable would be INR 14,329 * 240 = INR 34,38,960.
The interest is calculated as follows: INR 34,38,960 – INR 20,00,000 = INR 14,38,960.
How Do You Work Out the Interest Component of a Personal Loan EMI?
Apart from the HDFC personal loan EMI calculator, you can use the IPMT formula in Microsoft Excel to calculate the interest component of your EMI for a specific month/installment. =IPMT(rate, per, nper, pv, [fv],[type]) is the formula.
Where the alphabet means,
Rate = the interest rate or HDFC personal loan interest rate. If you are charged 12% annually, enter 12%/12 in this section if you are calculating on a monthly basis.
per = the instalment or month for which interest is calculated component
nper = the total loan tenure (in terms of EMIs).
pv = principal divided by loan amount
[fv] = This is a non-mandatory field that relates to the desired cash balance at the end of the loan term. This is typically set to 0 [type] = this can be 0 or 1 depending on whether the payment is paid at the beginning or end of the month.
Here’s an example for your better understanding
| Month | Loan Balance | EMI | Interest | Principal | Revised Balance |
| 1 | 5,00,000 | 11,122 | 5,000 | 6,122 | 4,93,878 |
For the following months, the interest will be calculated on the new loan balance (also known as the principal amount due). The following is how the new loan balance will be calculated:
Loan paid: Principal that is already being paid
The total interest payable is the entire amount of interest paid over the loan’s term.
How the Personal Loan interest rate is calculated?
HDFC personal loan interest rates or interest rates generally differ amongst lenders. Lenders provide personal loan interest rates based on your creditworthiness and a few other considerations. However, you may boost your trustworthiness by controlling some of the aspects that influence your personal loan interest rates.
The following are some of the elements that determine your HDFC personal loan interest rates:
Income: When deciding your HDFC personal loan interest rates, lenders take your income into account. It gives information about your ability to repay the loan as well as your financial stability at that point in time. Borrowers with higher incomes are often preferred by lenders since they are more likely to be able to make consistent payments. Higher-income levels may result in lower interest rates since lenders view borrowers with higher incomes as less risky. It should be emphasized that this element differs depending on where you live. For example, the income requirement for a Tier I city will differ from that of a Tier II city.
Credit rating: A credit score is a very important aspect in determining your creditworthiness. Before deciding on loan terms, lenders consider your CIBIL Score. Your CIBIL Score contains comprehensive information about your credit history. If you have a high credit score, lenders will see you as a reliable borrower and may offer you a low-interest personal loan. A CIBIL Score of 685 or higher is advantageous for getting low-interest personal loans.
Debt-to-income ratio (DTI): Your debt-to-income ratio (DTI) compares your monthly debt payments to your monthly income to determine your financial health. Lenders use this percentage to assess your ability to responsibly take on additional debt. Borrowers with lower DTI percentages are more likely to receive competitive HDFC personal loan interest rates from lenders. With a reduced DTI ratio, you have more disposable income to meet your loan obligations.
Employment stability: In addition to your salary, the stability of your current job impacts the interest rate on your personal loan. Working for a reputable company for at least two years can demonstrate job security in the minds of your lender. It shows that you have a steady stream of income and gives the lender confidence that you will return the loan on time. This crucial factor entitles you to a low personal loan interest rate.
Other factors: Economic variables, such as inflation, recession, and repo rates, can all have an impact on the cost of your loan. When there is inflation, lenders provide higher HDFC personal loan interest rates, whereas lenders offer lower rates during a recession. Low repo rates suggest lower interest rates as well as this is the rate at which lenders borrow from the RBI hence, it has a direct impact on the interest rates charged on personal loans. Although you have no control over these events, you can take advantage of them by borrowing during a low-interest rate period if possible.
So we are saying,
Personal loans are one of the most adaptable financing choices because they can be used to suit a wide range of financial requirements. A personal loan can be used for almost any purpose, from paying medical bills to remodelling your home. However, before applying for a personal loan, make sure that your monthly payments will fit within your budget. This is where you compute your total interest payment, which is determined by the interest rate on your personal loan.