EMI stands for Equated Monthly Installment for the loan you avail from your bank. The EMI consists of the principal portion of the loan amount and the interest. Therefore, EMI = principal amount + interest paid on the loan. The EMI, usually, remains fixed for the entire tenure of your loan, and it is to be repaid over the tenure of the loan on a monthly basis.
Mathematically, EMI is calculated as under:
P x R x (1+R)^N / [(1+R)^N-1]
P = Principal amount of the loan
R = Rate of interest
N = Number of monthly installments.
Here are the five benefits of using the EMI calculator:
– Easy to access
– Saves time and energy instead of performing manual calculations
– Provides quick results
– Helps you ascertain if the monthly EMI is affordable or not
– Aids you in financial planning
Do note that during the initial years of your loan tenure, you pay more towards interest, and gradually, as you repay the loan, a higher portion is adjusted towards the principal component (see table below). This is because; EMIs are computed on a reducing balance method, which works in your favor as a borrower.
Remember, the interest rate and your loan tenure are the vital deciding factors for your loan EMI. Higher the interest rate on the loan, higher will be your EMI and vice-versa. Similarly, a shorter loan tenure increases your EMI and vice versa.