When availing a loan, the rate of interest for the loan is decided by the lending institution from which it is availed. This could be a bank or a Non-Banking Financial Company (NBFC). The interest rate is determined by the lending institution after considering the type of loan, the repayment capacity of the applicant and his/her CIBIL/credit score. When a loan seeker applies for the loan, the lender will assess the application and documents and then decide on a rate of interest to charge for the loan. This interest rate will also be mentioned clearly in the loan agreement along with other important details.
Now, to calculate the rate of interest (R), when you have the values of the EMI, loan tenure (N) and principal (P), you will have to use the formula of calculating the Equated Monthly Installment, EMI=
EMI= P x R x (1+R)t
[(1+R)t]-1
where P= Loan Principal
R= Rate of interest per month
t= Loan tenure in months
You will have to do this manually as neither the PMT function in Microsoft Excel nor an online loan EMI calculator is equipped to do such operations. This will be a complex calculation to do manually.
Generally, for loan applicants, the only calculations that need to be done are for the EMI which can be easily calculated using the online EMI calculator. The other variables related to the loan, viz. principal, rate of interest and the tenure of repayment are always known. If you are applying for a loan, do not need to calculate the rate of interest that will be charged by the lender. You will have all the necessary information regarding loan repayment, including the EMI you will have to pay every month. However, if you wish to find out how much you are paying towards the interest and how much towards the principal, you can use the EMI calculator.
Read More: Calculate your Monthly EMIs With a Personal Loan EMI Calculator