Question 1

How is personal loan EMI calculated?

Accepted Answer

Personal loan EMI uses the standard reducing-balance formula: EMI = P × r × (1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the tenure in months. Interest is charged only on the outstanding balance, which reduces with every EMI.

Question 2

What is the reducing-balance method?

Accepted Answer

Under the reducing-balance (or diminishing-balance) method, interest each month is calculated on the remaining principal, not the original loan amount. As you repay, the outstanding balance falls, so the interest portion of each EMI shrinks and the principal portion grows. This is the method RBI-regulated banks use for personal loans, and it is cheaper than the flat-rate method.

Question 3

How does the processing fee work?

Accepted Answer

A processing fee is a one-time charge deducted when the loan is disbursed, usually 1% to 3% of the loan amount (sometimes with a cap). It is not part of the EMI. This calculator adds it to the total interest to show your Total Borrowing Cost and the effective cost of the loan.

Question 4

What is the Effective Cost of borrowing?

Accepted Answer

The effective cost here is the total cost of the loan — total interest plus the one-time processing fee — expressed as a percentage of the principal. It shows how much extra you pay overall to borrow. Note that this is a total-cost figure over the whole tenure, not an annualised APR.

Question 5

Is a personal loan secured?

Accepted Answer

No. A personal loan is unsecured, meaning it does not require collateral such as property or gold. Because there is no security, interest rates are usually higher than for home loans, and eligibility depends mainly on your income and credit score.

Question 6

Is my data sent to any server?

Accepted Answer

No. All calculations happen entirely in your browser using JavaScript. No data is sent to any server.

Personal Loan Calculator

How this is calculated

Frequently Asked Questions

Personal Loan Calculator

How this is calculated

Frequently Asked Questions