Interest calculation

Base amount

In a personal loan, the base amount is a key figure that has to be determined. This is the figure on which interest calculation is done, and it then proceeds based on the method chosen.

Not on amount disbursed

You should not calculate the interest based on the amount received by you because this will give an incorrect picture. The proper base is actually the total amount of the loan that is available to you.

Processing charge adjustment

In many cases, the processing charge is deducted from the amount of loan sanctioned and the remaining amount is then given to you. The processing charge is a cost for you and hence you cannot reduce this from the base amount while calculating interest.

Upfront instalments

In some situations, a few EMIs are recovered from you upfront. In such a case you might believe that this is going towards repayment of the loan, but often the benefit of this is not reflected in the interest calculation, leading to the increase in the cost for you.

Method specified

The method for calculation of interest is specified in the loan. You have to read the details carefully before making any decision or taking some action as this can influence the amount that you pay.