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How is EMI calculated?
EMI (Equated Monthly Installment) is calculated as a fixed monthly payment that a borrower makes to a lender to repay a loan, including both principal and interest, over the loan tenure. The calculation ensures that each installment remains constant, making financial planning easier.
EMI Calculation Formula
The standard formula for EMI is:
EMI = P × R × (1 + R)N ÷ [(1 + R)N – 1]
- P: Principal loan amount
- R: Monthly interest rate (annual interest ÷ 12 ÷ 100)
- N: Total number of monthly installments
Example Calculation
- Loan amount: 50 lakh
- Annual interest rate: 8% → Monthly rate = 0.08 ÷ 12 = 0.00667
- Tenure: 20 years → N = 240 months
Using the formula, the EMI can be calculated to determine the monthly payment for budgeting.
EMI calculation allows borrowers to plan loan repayments effectively, balancing principal and interest over time. Understanding the factors and formula helps in making informed decisions for home or personal loans.
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