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How to Calculate Loan Interest Rates and Compare Borrowing Options Effectively
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News18•06-10-2026, 12:30
How to Calculate Loan Interest Rates and Compare Borrowing Options Effectively
- •Learn how to calculate loan interest rates and use EMI formulas to evaluate different personal loan offers.
- •Understand why total borrowing costs matter beyond advertised interest rates, factoring in tenures and processing fees.
- •Discover how extending loan tenures lowers monthly EMIs but significantly increases the total interest payable over time.
- •Review key factors before choosing a loan, including foreclosure charges, late payment fees, and fixed versus floating rates.
Key Questions Answered
For a standard personal loan calculated on a reducing balance basis, the EMI formula is EMI equals P times r times (1 plus r) to the power of n divided by ((1 plus r) to the power of n minus 1), where P is principal, r is the monthly interest rate, and n is the number of monthly instalments.
A longer loan tenure reduces the monthly EMI amount, but it causes interest to accumulate over a longer period, resulting in a higher total interest cost by the end of the loan.
The actual interest rate is determined by the lender based on your eligibility, credit profile, the specific loan product, and applicable lending policies.
