What is EMI? How is it calculated?

Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts
    What is EMI? How is it calculated?
    Equated Monthly Installment (EMI) is the amount paid by borrowers each month to lender of the loan. EMI can be calculated for a car loan, home loan, personal loan, gold loan etc. The principal amount borrowed and the interest are added and then divided by the number of months, an individual desires to pay the total amount. The installments thus derived are called EMIs. 

    If you are planning to go for home loan, here are few tips.

    The calculation of EMI is based on your interest rates, loan amount and the tenure of the repayment for the entire loan.

    How is it calculated?

    EMI comprises of two variable components those are principal amount and interest rate. The component of interest amount is higher in initial years and decreases over the years.

    EMI is calculated using the factors like interest rates, loan amount and the tenure of the repayment.

    Formula used is: EMI= (loan amount*interest) * (1+interest)^n
                                                                          [(1 + Interest)^n] - 1
    Lets site an example:

    • Loan amount is Rs 10, 00,000/- 
    • Interest rate: 11/12= 0.0091
    • Loan period (n)= 15 years= 180 months

    EMI = (loan amount*interest) * (1+interest)^n
                                                  [(1 + Interest)^n] - 1

    EMI = (10,00,000*0.0091) * 1+0.0091) ^180
                                                 [(1+ 0.0091) ^180]-1

    This EMI of Rs 11, 365.96 to be paid every month towards principal and interest amount.

    Banks offer two different types of payment depending on what you opt for - fixed rate or floating rate. Click to know more on which is better.

    Fixed Rate EMI

    Fixed interest rate loans are those which remain same throughout the tenure. This can be best option only when interest rate have reached bottom, from where upward trend is expected.

    Floating rate EMI

    Floating interest rates move in tandem with market and RBI decisions which are prone to fluctuation depending on the market and economy.

    GoodReturns.in

    Read more about: home loan emi
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more