EMI Calculation Formula:
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EMI (Equated Monthly Installment) is the fixed payment amount a borrower pays 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 fully paid off along with interest.
The calculator uses the standard EMI formula:
Where:
Explanation: The formula calculates the fixed payment amount that includes both principal and interest components for each month of the loan term.
Details: The EMI formula is derived from the present value of annuity formula. It accounts for the time value of money, ensuring that each payment is equivalent in value when considering the interest rate.
Tips: Enter the principal amount, annual interest rate (as percentage), and loan tenure in months. The calculator will show your monthly payment, total payment over the loan term, and total interest paid.
Q1: How does loan tenure affect EMI?
A: Longer tenures reduce EMI but increase total interest paid. Shorter tenures increase EMI but reduce total interest.
Q2: What's the difference between flat rate and reducing balance?
A: This calculator uses reducing balance method where interest is calculated on outstanding principal. Flat rate calculates interest on original principal for entire term.
Q3: Can I prepay my loan to reduce interest?
A: Yes, prepayments reduce outstanding principal, which can significantly reduce total interest paid.
Q4: Why does my actual EMI differ slightly from calculator?
A: Lenders may use slightly different rounding methods or add processing fees/insurance to the EMI.
Q5: How does interest rate affect EMI?
A: Higher interest rates increase both EMI and total interest paid. Even small rate differences can have large impacts over long terms.