How Loan Comparison Works
Comparing loans is crucial for finding the most cost-effective borrowing option. This tool helps you evaluate two different loan scenarios by calculating and displaying their key financial aspects side-by-side.
The core calculation for each loan is the Equated Monthly Installment (EMI), derived using the standard formula:
$$EMI = P \times \frac{R \times (1+R)^N}{(1+R)^N-1}$$
- P: Principal Loan Amount
- R: Monthly Interest Rate (Annual Rate / 12 / 100)
- N: Loan Tenure in Months
By comparing the EMI, Total Interest Payable and Total Payable Amount for both loans, you can quickly identify which option is financially more advantageous based on your priorities (e.g., lower monthly burden vs. lower overall cost).
Frequently Asked Questions (FAQs)
1. Why should I compare loans?
Comparing loans helps you find the most suitable and affordable option by allowing you to evaluate different interest rates, tenures and total costs. It ensures you don't pay more than necessary and choose a loan that fits your financial capacity.
2. What factors are most important when comparing loans?
Key factors include the interest rate (lower is generally better), loan tenure (shorter tenure means less total interest but higher EMI, and vice-versa), and the total payable amount (principal + interest). Don't forget to consider processing fees and other charges too!
3. Can I compare different types of loans (e.g., home loan vs. personal loan)?
Yes, absolutely! While this tool uses a generic EMI calculation, you can input details from different loan types (home, car, personal) to see how their monthly payments and total costs stack up against each other.
4. What if one loan has a different tenure than the other?
This calculator is designed to handle different tenures for each loan. You can input varying years and months for Loan 1 and Loan 2, and the tool will accurately calculate their respective EMIs and total costs based on the provided tenure.
5. How does a lower interest rate impact the comparison?
A lower interest rate generally results in a lower monthly EMI and, more significantly, a lower total interest paid over the life of the loan. When comparing, the loan with the lower effective interest rate (considering all charges) is usually the more economical choice.
