A question that most people ask before applying for a home loan is whether to use an online EMI calculator or to do the calculation manually. Manual calculation helps you understand the math, while online calculators make it very quick, simple, and minimize errors. Knowing more about both methods will help you decide which one to choose.
What is Manual EMI Calculation?
Manual Calculation requires you to use the standard formula for EMI:
EMI = [P x R x (1+R)^N] / [(1+R)^N – 1].
Where,
P = Is the loan amount (Principal)
R = is the monthly rate of interest (annual rate/12/100)
N = Number of Months
For example, if you take out a 12 Lakh home loan at 8.5% annual interest, for a tenure of 10 years (120 months)
R = (8.5/12/100)=0.007%
P = 1200000
N = 120
Now, putting these values in the formula will look like this:
[1200000 x 0.007(1+0.007)^120]/[(1+0.007)^120-1]
Numerator- 1200000 x 0.007 x 2.332= 19827
Denominator- 2.332-1= 1.332
EMI = 19827/1.332 = 14,878 (Approximately)
What is an EMI Calculator?
A housing loan EMI calculator is an online tool that helps you calculate your EMI instantly. All you do is enter three values:
- Loan Amount
- Rate of Interest
- Loan Tenure
In seconds, it’ll show you EMI, total interest, and repayment amount. Some calculators even let you add prepayment options to see how it’ll reduce your tenure.
Manual vs Online Calculators
Manual calculations can be slightly off at times because of rounding errors or because of the large numbers. Interest compounding can make the calculations very complex; even the slightest of errors can manipulate results.
On the other hand, online calculators are automated and error-free. They can handle both fixed and fluctuating interest rates. Since it’s automated, the chances of errors are low.
Speed and Convenience
- Manual: Requires multiple steps, calculations, and sometimes even a physical calculator. Just testing one scenario can take a lot of time.
- Online: You get instant and accurate results. You can compare multiple loan options in the time it takes to do one manually.
Real-Life Scenarios
Accurate calculations are crucial when managing your home loan, and using a calculator makes this simple.
- Prepayment impact on EMI: Prepaying a part of your loan can reduce your EMI or tenure. For example, prepaying ₹5 lakh on a ₹50 lakh loan can lower your EMI by ₹3,870 or shorten your tenure by 2.5 years.
- Interest rate changes for floating loans: A small hike in interest rate can increase EMIs significantly. A loan of ₹60 lakh at 6.5% may see EMI rise by nearly ₹2,000 if rates increase to 7%.
- Loan tenure adjustments: Extending or shortening your loan affects EMIs and total interest. Shortening a 20-year loan can raise your EMI but reduce interest paid.
Loan calculators make these scenarios easy to simulate, ensuring you always know the exact impact before making decisions.
Common Mistakes When Manually Calculating EMI
- Ignoring the monthly compounding of interest
- Forgetting to convert the annual rate of interest into a monthly rate.
- Using years instead of months when calculating. (Using 20 instead of 240 (i.e., 20×120))
Why Using an EMI Calculator is Recommended
- You get accurate and quick results.
- You can test various scenarios (tenure, interest rate, prepayment) instantly.
- You get an amortization table to see the interest vs principal element, which is very difficult to do manually.
If you are planning to calculate your home loan EMI, then it would be best for you to use a housing loan EMI calculator, like the one offered by PNB Housing Finance. With it, you can do accurate EMI, interest, and repayment planning instantly. Before you apply, review your home loan eligibility to see which loan options match your financial profile.
Manual EMI is a good learning tool for you to understand how your loan repayment works clearly, but for quick, error-free, and scenario-based testing, you should choose an online EMI calculator.
