Easy curiosity is among the best methods to calculate the annual curiosity bills and earnings on loans and deposits. Due to this fact, it turns into vital to know the idea of straightforward curiosity and learn how to calculate easy curiosity.

What’s Easy Curiosity?

Easy curiosity is the way in which to instantly calculate the share charged on the principal quantity for a particular interval. One of many distinctive options of a easy curiosity calculation is the principal quantity stays fixed no matter the time interval.

Easy Curiosity Fee Formulation

Easy Curiosity = Principal (P) * Fee of Curiosity (R)* Time (T)

To calculate the easy curiosity, the curiosity is utilized to the preliminary principal quantity after which multiplied by the point interval. The time interval is at all times denoted in years and if the time interval is denoted in months, it must be transformed to 12 months format. For instance, if the time interval is 9 months, it must be put up as 9/12 to make it year-wise.

Let’s test how curiosity is calculated utilizing a easy curiosity method with the next instance.

Principal quantity: Rs 1 lakh
Fee of curiosity: 12%
Time interval: 18 months
Easy Curiosity= 1,00,000 * (12/100) * (18/24)= Rs 9,000

As per easy curiosity calculation, the curiosity quantity is Rs 9,000. 

With the arrival of on-line free calculators, you’ll be able to instantly calculate the easy curiosity quantity immediately with out the necessity to do it manually.

Limitations of Easy Curiosity

Regardless of being one of many best methods to calculate curiosity on the principal quantity, there are a couple of limitations, together with:

• Can’t calculate the advantages of compounding: It fails to calculate progressive returns on the deposits or the mortgage quantity. For that reason, compound curiosity is used to calculate the advantages of compounding precisely.
• Restricted utility: In fashionable banking and finance, easy curiosity has misplaced relevance and is just used to calculate curiosity on short-term (lower than 12 months) deposits and loans. 

The best way to Calculate Curiosity Bills on an Immediate Private Mortgage?

On a private mortgage, the curiosity is calculated on the excellent principal quantity. Due to this fact, after each EMI, the curiosity bills change. 

As an example, if in case you have taken an on the spot private mortgage of Rs 5 lakh at a 14% charge of curiosity for 3 years, your EMI quantity shall be Rs 17,089 per 30 days. 

Within the first month, the share of curiosity bills on the EMI quantity shall be Rs 5,833 and the principal repaid shall be Rs 11,256. Because the excellent principal quantity has decreased after fee of the primary EMI, the curiosity expense additionally reduces. Within the second month, the share of curiosity bills on the EMI quantity shall be Rs 5,702 and the principal quantity shall be Rs 11,387.

Utilizing the easy curiosity method, it’s troublesome to precisely calculate the curiosity expense because of the complexities and altering principal quantity and time interval. Due to this fact, utilizing a private mortgage calculator will aid you calculate the EMI quantity and share of curiosity expense in every EMI precisely. 

Should Learn: Benefits of Utilizing a Private Mortgage EMI Calculator

What’s a Private Mortgage Calculator?

The private mortgage calculator makes use of a modified model of the easy curiosity method. It makes use of the method:

EMI= P*R*(1+r)n/((1+n)n-1)

P= principal quantity, R= charge of curiosity, and n= tenure in months. 

The private mortgage EMI calculator offers you a near-accurate estimate of your month-to-month EMI by bearing in mind the principal quantity, tenure, and private mortgage charge. It’s also possible to test the EMI quantity for various tenures.

Moreover, utilizing the private mortgage EMI calculator, you get the private mortgage amortization schedule, which is an in depth desk of periodic mortgage EMI funds. It offers the small print of the share of curiosity bills and principal quantity in every EMI fee of the chosen mortgage tenure. On this method, you’ll be able to successfully plan your EMIs and cut back the burden in your funds.

Private Mortgage Necessities

Now that you know the way to calculate a private mortgage EMI and curiosity quantity, you have to be questioning what are the elements that affect private mortgage charges. The next are high elements {that a} lender seems for in a mortgage utility:

• Mortgage Quantity: In case you are going for the next mortgage quantity, the speed of curiosity charged shall be greater due to the upper credit score danger borne by the lender
• Credit score Rating and Historical past: The applicant ought to have a credit score rating of 750 and above. A decrease credit score rating will lead to rejection of the mortgage utility or the next private mortgage charge.
• Revenue: The lender imposes a minimal earnings requirement to make sure that the borrower has sufficient monetary means to repay the mortgage on time. 
• Debt-to-Revenue Ratio: The debt-to-income ratio or the full EMI together with the brand new EMI shouldn’t exceed 50% of the full earnings. A better debt-to-income ratio signifies the next likelihood of default by the borrower.