How to Calculate EMI for Personal Loans?

Guest Contributor
Last updated Jul 19, 2022

What makes personal loans a good financial choice is the fact that you can repay them over affordable monthly instalments. Equated Monthly Instalments (EMIs) spread the cost of the loan’s principal amount and interest over a fixed period of instalments every month.  So, how exactly are they calculated? 

Among other factors, such as the loan’s tenure and Annual Percentage Rate (APR), calculating your EMI is a crucial part of the loan comparison process. While there are a myriad of intuitive calculators available online, we’ve simplified the formula in this article just for you. 

Are there any additional costs associated with your loan that could jack up the APR? Read on to find out!

Factors that affect your EMI calculation

Before we delve into calculations, it’s important to know the three factors that affect your EMI:

  • Credit score
  • Interest rate
  • Loan tenure

Firstly, it’s important to know how your eligibility can indirectly affect the calculation as well. Different lenders have varied eligibility checklists but here’s what’s common in all of them: 

  • Singapore citizen or Permanent Resident
  • Foreigners may apply but they must have an existing cash line or credit card account
  • 21 – 75 years old
  • A minimum annual income of S$20,000

Credit scores, more importantly, are a pivotal part of your application as they help lenders determine the proposed risk. A higher credit score not only opens more avenues for credit opportunities, but also enables competitive interest rates on personal loans. 

Ultimately, the interest rate, along with the loan tenure, determine your EMI. Both of these are heavily influenced by your eligibility profile and credit score.


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How to calculate the EMIs of your personal loan?

Ideally, you want your EMIs to be affordable, which is why some extend their loan tenure. However, a longer repayment period means more interest accrued. Thus, it may even cost you more in the long run. 

Weigh the pros and cons of each offer and make an informed decision, taking your affordability into account. 

When it comes to calculating your personal loan EMIs, there are two separate approaches that you can pursue: 

  • Flat-rate 
  • Reducing-balance

Flat-rate method

The formula of calculating your EMI using the flat-rate method is simply:


(P + (P x T x I)) / (T X 12) 

‘P’ represents the principal amount of the loan, while ‘T’ is the loan tenure, and ‘I’ is the flat interest rate. 

Now, don’t get overwhelmed with these figures! We’ll explain this in the form of an example. 

For instance, you take a loan worth S$10,000 at 7.5% (or 0.075) over a term of five years (or 60 months) repayable over monthly instalments. Here’s what your calculations will look like:

EMI = (10000 + (10000 x 5  x 0.075) / (5 x12) 

Using the example and formula above, your EMI should be S$299.17. 

Reducing-balance

Meanwhile, the formula used for reduce-balancing is as follows: 

(P x I) x ((1 + r)n)/ (t x ((1 + r)n)- 1)

Where: 

P = principal amount borrowed

I = annual interest rate

r = the periodic monthly interest rate

t = the number of months in a year

The number crunching seems quite intimidating. But fret not, for there are countless reliable EMI calculators available online that you can use to stay on top of your monthly repayments. 

Flat-rate vs reducing-balance

The reducing-balance may be more favourable for you since it usually results in lower payments as the flat-rate method commonly has a higher effective interest rate. In the end, the reducing-balance allows you to save more money as your loan tenure goes by. 

Talk to your financial advisor or provider to ensure an agreeable EMI amount. Remember, this will be a long-term commitment, so it’s good to get the best option. 

Why is it important to understand EMI calculations

Knowing what you owe your lender each month enables you to budget your expenses accordingly. Besides, missing out on your instalments can dent your credit score for a significant period. 

Pro-tip: If you’re unable to keep up with your repayments, you could set up the direct debit service. Direct debit automatically debits the instalment from your account on the repayment date. 

Are there any extra costs associated with your loan?

Overhead costs are not applicable to all loans. Whether or not you incur any additional costs depends on your lender. However, they usually include details of extra charges within the fineprint.

Here are some costs that your lender may be charging: 

  • Late payment fee: If you fail to pay an instalment on the due date, your lender may charge a late payment fee. Avoid these charges by paying your instalment in full and on time. Too many missed payments is detrimental to your credit score. 
  • Prepayment fee: Did you just get a yearly bonus to settle your loan for good? You may get slapped with a prepayment charge if you pay your loan early. Several lenders charge a hefty fee on early settlement. Sometimes it may not be worth paying these soaring costs, so it’s best to consult your lender regarding early repayment.
  • Loan origination fee: This is a one-time fee that lenders charge for the processing of your loan application. You may negotiate this fee if you happen to have a good credit score.

A financial blip should merely be a pause in your journey, not the end of it. If you want to bridge your financial gaps with a personal loan, alleviate your burden by splitting your expenses into affordable EMIs over the term of your loan. 

Compare and find personal loans tailored to your financial circumstances with SingSaver. 


Read these next:

Best Personal Loans To Ease Your Cash Flow In Singapore (2022)
How Many Personal Loans Can You Have at Once?
Top 6 Myths About Personal Loans, Busted
For Self-Employed Singaporeans, Personal Loans are Tougher to Get
Best Short-Term Personal Loans in Singapore

Guest Contributor July 19, 2022 93217