Buying a plot of land is a great idea if you want to invest your money in wealth building. Land pays off as much ROI as gold does. Also, a lot of people do not like the apartment life and decide to build and settle in a house of their preference. However, buying a plot of land requires quite a lot of funding and having that much cash ready is not a very likely scenario.
Now, one has the option to get a property loan and take a step towards their dream house. Additionally, one should use a land loan EMI calculator to be sure of their financial decisions beforehand and avoid any mishap after all is said and done.
What is a land loan EMI calculator?
A land loan EMI calculator is a financial tool available online. The tool aids in making any decision about loans easier by omitting the manual calculation part and providing people with accurate results within seconds.
One has to enter the loan tenor, loan amount, and applicable interest rate precisely to get an accurate EMI amount that you have to pay each month without default. One can adjust the inputs multiple times and find out the combination of tenor, principal and loan term that works the best.
How does an EMI calculator work?
One can find out the EMI amount for a land loan by using the following mathematical expression:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Here, P stands for the principal amount
R signifies the rate of interest applicable. The rate of interest is usually set annually by the financial institution. Borrowers need to convert this to a monthly rate of interest.
N is the tenor of loan. However, repayment is done every month. Hence, while calculating, N represents the number of months. For instance, if the loan repayment tenor is 4 years, N would be 48 months. i.e., 48.
Here’s how this formula works:
Suppose a borrower needs to get a property loan of Rs.1 lakh at a 7% rate of interest. The tenor of the loan will be of 5 years.
Putting these values in the formula, one gets:
P = 1,00,000
R = 7/100/5 = 0.014
N = 5 X12 = 60
Hence, EMI = [1,00,000 x 0.014 x (1+0.014)^60]/[(1+0.014)^60-1] = Rs. 1,980
This manual calculation process is hectic and leaves room for human errors. Hence, it is better to opt for a land loan EMI calculator and make the application process less troublesome and make wise decisions.
How to use an EMI calculator?
While using a loan EMI calculator, one needs to know and enter the following three values precisely:
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Loan amount
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Loan tenor
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Rate of interest
Given below are the primary steps of using a loan EMI calculator:
Step 1: Visit the website of the lender or any other website of loan EMI calculator.
Step 2: Enter the necessary details such as tenor, loan amount and interest rate.
Step 3: The EMI calculator will view the EMI amount payable instantly.
Step 4: Along with the EMI amount, one can also view other details such as total interest and total loan amount payable.
Step 5: One can try entering different parameters and get different results to choose the one most viable.
What are the benefits of using an EMI calculator?
EMI calculator has become a staple among borrowers as it helps them make responsible financial decisions. Here are some key advantages of using an EMI calculator:
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Accuracy
The EMI calculator uses all the inputs given by the user and gives accurate results within seconds. This tool eliminates the chances of human error and helps in financial planning.
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Time-Saving
An EMI calculator takes a fraction of a second to show results. This saves time and the trouble of the time-consuming process of manual calculation.
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Helps in Financial Planning
By using an EMI calculator one can make the right decision as you can find the option of EMI amount that is the most viable. Hence, it helps in financial planning by helping one choose the most suitable option. This removes or lessens the chances of defaulting on EMI payments.
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Easy to Use
EMI calculators have a very easy-to-use user interface that requires zero to no instruction or guidance to use. The hassle-free and smooth interface adds to the advantages of this tool.
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Responsible Decision Making
It is important to calculate beforehand how much EMI one can pay comfortably each month along with all the other expenses. If one doesn’t consider these factors beforehand, they can fail to pay EMI which will affect the credit score. A poor credit score will bring difficulty in future loan approvals, even for secured loans such as loan against property.
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Error Free Results
Results from an EMI calculator are error-free as the calculation process doesn’t involve human effort. Given one has entered the figures precisely; they will get accurate results within a fraction of a second.
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Comparison of Options
One can use this tool as many times as possible by adjusting the inputs and finding the EMI amount they can comfortably pay off. This also helps to choose between lenders with different rates of interest and tenors and choose the most fitting one.
What are the factors affecting a loan EMI?
Here are some factors that can affect a loan EMI:
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Tenor
Tenor plays a significant role in determining the EMI amount. The longer the tenor, the shorter the EMI amount and vice versa. However, one should keep in mind that it is wiser to keep the tenor as short as possible to keep the interest payment at a minimum.
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Principal
This is the prime factor that determines the EMI amount in the first place. The higher the loan amount the more numbers of EMIs one will have to bear.
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Interest Rate
This is another factor that is directly proportional to the EMI amount. Higher interest rates will result in higher amounts while lower rates will result in lower EMIs.
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Prepayment
Prepayments lower the EMI as it cuts down the principal amount to be paid off, resulting in lower interest rate and EMI.
Check with the lender if you are eligible for pre-approved offers. Pre-approved offers help expedite the loan process and are available on products like home loan and LAP. Borrowers can check their pre-approved offers with their name and contact details. Borrowers should use a land loan EMI calculator before applying for a loan for a hassle-free loan application and approval process.