A term loan is funding from a bank for an amount to be repaid as per the EMI (Equated Monthly Instalment) schedule. The interest rate can be either specified or floating rate as per the option of the borrower. Term loans can be extended for various purposes, including setting up a business, working capital expense, purchasing equipment, overhaul plant and machinery etc. The loan tenure can range from 1 year to 3 years to 10 years. The tenure may be extended case-to-case basis for up to 30 years. Furthermore, shorter-term credits can be expanded for companies that require funds but do not permit longer-term credit. Term loans are extended for both greenfield and brownfield projects.
How does a Term Loan Work?
Due to various factors such as predetermined loan amounts, payback schedules, and interest rates, these loans are one of the most efficient types available to businesses. The company must identify essential factors to grasp how term lending functions. A term loan has five elements: the loan amount, the interest rate, the period, the repayment plan, and whether the loan is guaranteed or unsecured. This loan’s repayment deal is fixed. This amount is specified by the type of loan selected and the borrower’s eligibility. The interest rate on this business loan might be selected or fluctuate. Whichever rate the borrower desires is entirely up to the borrower. Further, the loan size is predetermined. Across the loan duration, the company must repay the loan amount in EMIs by the collection compensation plan.
How does a Term Loan EMI Calculator work?
A business can best use a long-term loan calculator and EMI calculator for a term loan in excel for the same results. In the latter, you also benefit from the amortization chart showing the entire loan pattern. Also understood as a term loan interest calculator, it operates a mathematical formula to calculate EMI, interest and the total amount payable.
The formula used is
E = P x r x (1 + r) ^ n / [(1 + r) ^ n – 1]
Whereby,
· E = EMI
· P = Principal amount
· r = Term loan interest rate
· n = Loan term (in months)
Once the principal, rate of interest and tenor are joined, it shows three outcomes:
· Total interest payable
· Total amount payable (Principal + interest)
· EMI amount
Steps to calculate term loan EMI
1. Input the loan amount to be availed
2. Choose a loan tenor
3. Enter the rate of interest applicable
Once these data are put in, the calculator will show the outcomes in the form of EMIs.
A Term Loan EMI Calculator is a valuable financial tool for comparing various loan options or terms. Make your comparison per the applicable term loan interest rates for various financial organizations to determine the best choice. Also, try various tenor possibilities to discover the most profitable balance between EMIs and the total price of the loan.
