Pursuing higher education often necessitates taking out education loans. While these provide timely funding, managing loan repayments for years poses financial planning challenges for students and parents alike.
An optimal approach is to accurately estimate the Equated Monthly Instalment (EMI) commitment before taking the loan. EMI calculators easily facilitate this.
This article discusses effectively utilising these tools for prudent education loan planning before disbursing.
What is an EMI Calculator and How Does it Function?
An EMI or Equated Monthly Instalment calculator is an instrument that assists in approximating the regular fixed sum that a person taking a loan needs to pay back each month to settle the loan within the timeframe chosen ultimately.
The vital data required to utilise this calculator comprises:
- Loan amount (principal)
- Interest rate
- Loan tenure
The EMI calculator formula calculates each EMI’s interest and principal portions based on these three inputs. Typically, the initial EMIs have a higher interest share, while the principal component goes up in later years. It enables the borrower to repay the loan through fixed EMIs over the tenure.
How to use an EMI Calculator for Your Education Funding
Follow these steps to use education loan EMI calculator effectively:
1. Input Your Loan Details:
Firstly, enter your study programme’s total expenses and determine the required loan amount. Next, input this principal loan amount in the EMI calculator.
2. Set the Loan Tenure:
Education loans allow tenures ranging from 5 to 15 years. Select your preferred loan term based on your course duration, projected income, and financial goals. Input this tenure in months or years.
3. Add the Interest Rate:
Enter the current interest rate offered for education loans by different lenders to assess options. If rates are variable, use the maximum rate to create a buffer.
4. Review the Results:
The calculator will display the fixed EMI amount payable monthly and the total interest outgo based on your provided details.
5. Experiment with Different Scenarios:
Now, change the parameters like loan amount, tenure and interest rates to compare different scenarios and outcomes. Tweak them to arrive at the most affordable option.
Benefits of Using an EMI Calculator for Education Loans
Using an EMI calculator for your abroad education loan planning offers the following key benefits:
1. Precise Financial Planning:
The calculator lets you determine the specific EMI amount and total repayment sum. This aids in budgeting and managing your finances prudently during the repayment phase.
2. Easy Comparison of Loan Options:
When you input different loan amounts and interest rates, you can easily compare options from multiple lenders, helping you identify the most cost-effective loan.
3. Avoid Financial Stress:
The tool lets you structure your repayment to align with your projected post-course earnings. This prevents payment defaults and financial stress later.
4. Facilitates Smart Decision-Making:
You can assess outcomes by modifying tenure options or assumed interest rates. This lets you make well-informed choices like ideal loan terms, prepayments, etc.
Conclusion
An education loan EMI calculator is your best friend when planning loan repayments. Use it to gain control over your finances and smoothly navigate the repayment journey. So don’t forget to use this tool whether you’re a student or a parent taking an education loan. With strategic planning of repayment timelines right at the outset, you can optimise budgets and be prepared for all aspects of servicing your academic funding.
