In today’s post, you will learn the EMI formula to calculate your business loan EMI and the benefits of using the EMI calculator. Morever, how to do calculation of emi yourself.
A business loan is a tool to strengthen a business’ financial foundation. In order to execute a prospective plan, a strong financial base is needed.
Depending on the requirement and eligibility, the loan amount is fixated by the financial institution. Tenure is designed based on the repayment protocol the borrower has to follow.
The repayment plan comprises of a monthly instalment paid by the borrower till the tenure ends. This easy monthly instalment (EMI) plan will be formulated by using a particular calculation formula.
For the easement of planning, the lending companies have EMI calculators that aid a borrower to find out the EMI he has to pay against a loan amount disbursed by the lending company.
Table of Contents
What is a Business Loan EMI?
There are plenty of ways to pay business loan EMI and Equated Monthly Instalment (EMI) is the easiest one. In this method, your loan amount gets divided into equal fixed sums that you will pay on a monthly basis until your loan gets repaid.
An EMI have two parts your loan’s pricipal amount and the interest that apply on it. The repayment method is best for small businesses who want to buy expensive machinery, equipments, inventory, etc. but don’t have enough fund to pay it in single hand.
As per the financial agreement between the borrower and the lender, a particular amount of money has to be paid every month. This amount is calculated considering the interest rate on the principal amount fixated by the lending institution.
The EMI payment solutions have created an excellent tool for the borrowers to avail of a lump sum of money and pay it conveniently over a stipulated amount of time.
The online portals of the lenders show how to calculate the EMI calculator formula. The formula is the same in all portals.
What is an EMI Calculator for a Business Loan?
A small business loan calculator lets you calculate your monthly EMIs on your business loan.
Using business loan EMI calculator you will know how much EMI you need to pay every month for a certain time to repay your loan. Therefore, you can plan how much cash you need to spend for EMI each month.
The loan repayment scheme is mutually settled by the borrower and lender. An agreement is signed by both parties. Once the loan amount is disbursed, the borrower is obligated to pay the monthly amount that includes the decided interest rate.
Using the EMI calculator for a business loan, the borrower can easily find out what he has to pay every month considering the amount he wants to borrow and the interest on that amount.
The factors in a business loan EMI calculator can be adjusted as per the convenience of the borrower to find out the most feasible plan to repay the loan amount on time.
There is no need to go down to a lender’s office anymore and discuss the interest rates, loan amount, EMI, and tenure when you can easily find out what you want and how you have to comply with it.
The EMI calculator is set on the terms and conditions followed by the lender. All the borrower has to do is to enter specific variables in every section of the calculator to find out an EMI plan instantly.
It helps a lender to learn more and plan his future accordingly by considering the data provided by the business loan EMI calculator.
How to Calculate Your EMI Using Business Loan EMI Calculator?
Using a business loan EMI calculator is easy, all you need to choose the loan amount, tenor and rate of interest and done. The EMI calculator formula will do the calculation and show you the EMI that you will have to pay every month to repate the loan amount.
The EMI calculation formula behind this process is simple and easy to understand.
Loan EMI Calculator Formula
A mathematical formula is considered and used by the entire financial industry to calculate an EMI on any loan amount, tenure, and interest rate.
This formula is incorporated in the website application of the EMI calculator. It offers an adjustable platform where a user can put variables in the specific sections as per his consideration and calculate an EMI.
Here is the loan EMI calculation formula with example:
EMI = [P x R x (1+R) ^ N] / [(1+R) ^ (N-1)]
The terms in this formula are described below.
EMI = Equated Monthly Instalment
- P stands for the amount of principal you are going to borrow from the lending institution
- R stands for the interest rate the institution considers for a business loan. It will vary depending on the loan amount you want to secure from the lender. The rate will be calculated on a monthly basis to generate an EMI amount based on the variables introduced by the user into the calculator.
- N stands for the loan term or tenure within which the borrower will have to pay the amount. The tenure will also be introduced in the formula in months to calculate the EMI.
Let us consider an example to find out the EMI a person has to pay if he borrows INR 2 Lakh for the tenure of 2 years. The rate of interest is 20% per annum. The first step is to convert the annual rate of interest into a monthly one to find out the EMI level. If we divide 20% by 12 months, we get:
20%/12 = 1.66%
The second step is to convert the tenure into months before calculating the EMI. It means that the 2-years tenure will become 24 months. The rest becomes pretty easy. All you have to do is introduce the values in the variable positions.
EMI = [P x R x (1+R) ^ N] / [(1+R) ^ (N-1)]
Here, P = INR 200,000
R = 1.66%
N = 24 months
The formula becomes:
EMI= [2,00,000 x 1.66/100 x (1+1.66/100) ^ 24 / [ (1+1.66/100) ^ 24 – 1 ]
The EMI is calculated to be INR 10,179. This formula is universal and is used in all the financial institutions across the world. Only the key variables, mentioned above, change as per the requirement of a user and the considerations of a lender.
Advantages of using Business Loan EMI Calculator
The advantages of using a commercial loan EMI calculator are mentioned below.
- Understanding the Loan: Even the most straightforward financial terms are not clear to all the borrowers. To make it simple, an EMI calculator business loan can be used. A simple explanation of the terms to calculate the monthly instalments make it easier for the borrowers to understand the monetary features of a loan easily.
- Time-saving: Calculating a loan EMI using the calculator will help you save time and resources. You will not have to visit a lender or a financial institution anymore. You can decide on the amount you want to borrow and find out the monthly obligations you have to comply with. Enter a few values in the calculator and get results in seconds.
- It helps you get an accurate estimate of your EMI amount so that you can plan your finances accordingly. Make sure that your debt-to-income ratio is below 50% to maximize your chances of loan approval.
- It eliminates any chance of a miscalculation, providing you with an accurate estimate every time.
- It is highly specific for each type of loan. The EMI breakup of a home loan, for example, is different from that of a personal loan.
It is now extremely convenient for the prospective borrowers to calculate and understand repayment tenure by using an EMI calculator for a business loan.
Visit ZipLoan to calculate your business loan EMI online and seek professional help from our executives to quench all your queries.
Frequently Asked Questions
The mathematical formula to calculate EMI is: EMI = P × r × (1 + r)n/((1 + r)n – 1) where P= Loan amount, r= interest rate, n=tenure in number of months. The higher the loan amount or interest rate, the higher is the EMI payments and vice versa.
Calculating interest on a car, personal or home loan
1) Divide your interest rate by the number of payments you’ll make in the year (interest rates are expressed annually).
2) Multiply it by the balance of your loan, which for the first payment, will be your whole principal amount.
The Equated Monthly Instalment (or EMI) consists of the principal portion of the loan amount and the interest. Therefore, EMI = principal amount + interest paid on the personal loan.
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