How is Interest Calculated on Personal Loans? | HeroFinCorp
What Is the Formula for Interest Rate on Personal Loan?
Calculating personal loan interest involves a simple formula:
Interest = Principal x Interest Rate x Tenure
For example, borrowing 1,50,000 at 13% per annum for 24 months results in approximately 17,081 as interest. Your total repayment becomes 1,67,081.
Many loans use the reducing balance method, where interest is applied on the outstanding loan balance monthly, providing more accuracy and potentially lowering interest costs over time.
Also Read : Interest Rate: Definition, How It Works, Examples
How Do I Calculate the Interest Rate on a Loan?
Lenders typically use this formula to calculate monthly EMI on your loan:
EMI = P × r × (1 + r)^n / ((1 + r)^n - 1)
Where:
P = Principal amount
r = Monthly interest rate (annual rate divided by 12)
n = Total number of monthly instalments (tenure)
This ensures equal monthly instalments covering principal and interest over your loan period.
How is Total Interest on a Loan Calculated?
To find the total interest:
- Multiply EMI by tenure (months) to get total repayment amount
- Subtract principal amount from total repayment to get total interest paid This amount varies with the interest type and tenure.
Types of Interest Rates on Personal Loans
In India, there are two types of interest rates:
- Fixed Interest Rate: A fixed interest rate remains the same throughout the loan tenure, making your EMIs predictable.
- Floating Interest Rate: A floating rate interest rate can vary as per market conditions and RBI’s policy rates, so your EMIs can either increase or decrease.
Usually, lenders offer Personal Loans with fixed interest rates as it helps borrowers plan out their repayments in a better way.
Also Read : What Factors are considered to calculate the Interest Rate?
Factor Affecting the Interest Rate
Getting clarity on the interest amount helps in deciding the monthly EMI. Clear all your outstanding loans on time to get a good interest rate. With reasonable interest rates and flexible timelines, you can manage EMIseasily. When applying for an instant loan, the interest rate offered by the lender depends on three factors:
- Principal loan amount
- Monthly income
- Credit history
Considering the above factors, you can calculate the interest rate payable on the principal amount and tenure.
Calculate Loan EMIs with Hero FinCorp
HeroFinCorp, a secured personal loan app in India, is easy to use and recommended to calculate loan EMIs. The tool is free, secured, and accurate for giving results within seconds.The interest rate charged may be fixed or floating, depending upon the loan type you have applied.Floating interest rates may increase or decrease with time. Check the base interest rate available and calculate the EMI. Download the HeroFinCorp app via Google Play store and begin with calculating the interest and derive EMIs that fit your budget.A loan calculator is a technology that saves your time in doing manual calculations. Assessing EMI simplifies loan taking decisions and helps in quick disbursal.
Also Read : Benefits of using the Interest Rate Calculator
Conclusion
Knowing the way interest is calculated on your Personal Loan can help you make a well-informed borrowing decision. Whether you choose a fixed or floating rate, the interest will have an impact on your total loan cost. You can use a Personal Loan EMI Calculator, available on the website of top lending institutions like Hero FinCorp, to calculate your interest. It can help you know your EMI amount and the total interest payable on a loan. You can use this tool to compare different loan plans and choose one that fits your budget.
Frequently Asked Questions
1. How does compound interest apply?
The interest is calculated on the principal amount plus any accrued interest. With this, the loan amount grows faster over time.
2. How to know the interest rate on a loan?
You can check with your lender either online or through their branch office.
3. Difference between flat and reducing balance methods?
Flat rate charges interest on the entire principal amount throughout the tenure, while reducing balance charges interest only on the outstanding loan amount.
4. Can I prepay my loan?
Yes, many lenders allow you to make prepayment either partially or fully. However, you must check for any prepayment penalties or lock-in periods.
Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
About Hero Fincorp
Hero Fincorp offers a wide range of financial products including Personal Loans for personal needs, Business Loans to support business growth, Used Car Loans for purchasing pre-owned vehicles, Two-Wheeler Loans for bike financing, and Loan Against Property for leveraging real estate assets. We provide tailored solutions with quick processing, minimal paperwork, and flexible repayment options for smooth and convenient borrowing experience.
