Understanding Equated Monthly Installments (EMI)
An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.
Using our completely free EMI calculator, you can instantly determine your monthly financial commitment before taking out a home loan, car loan, or personal loan. Planning your finances properly ensures that your monthly outgoings are well-managed and you avoid defaulting on your loans.
The EMI Calculation Formula
The mathematical formula used to calculate EMI is:
- P = Principal loan amount
- R = Rate of interest calculated on a monthly basis (i.e., Annual Rate / 12 / 100)
- N = Loan tenure in months
Worked Example
Let's say you take a loan of ₹5,00,000 (P) at an annual interest rate of 10.5% for a tenure of 5 years.
- R (Monthly Rate) = 10.5 / 12 / 100 = 0.00875
- N (Tenure in months) = 5 x 12 = 60 months
Plugging these values into the formula gives an EMI of approximately ₹10,747.
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