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What is EMI and How it is Calculated

What is EMI and How it is Calculated

Easy monthly installments, or EMIs, are a way of paying for a product or service by dividing the total cost into smaller, more manageable payments that are made on a regular basis, typically monthly. This allows the buyer to pay for the product or service over a period of time, rather than having to pay the full amount upfront. EMIs are often used for large purchases, such as buying a car or a home, or for financing a project. This makes it easier for the buyer to manage their finances and pay for the purchase without having to come up with a large amount of money all at once.

Monthly Installments (EMIs) are a part of paying back the loan you took out. The principal and the interest are the two parts of an EMI. The principal is paid back with the money you borrowed. In addition, the interest goes to the lender as payment for the loan. This interest is either added to the full amount of all EMIs or to the amount of principal that has been paid or is still owed.

What is EMI?

Equal Monthly Installment, or EMI, refers to the amount we must pay toward the loan/ product obtained. The principal and interest on the loan are paid with the monthly EMI payments. The interest component of the EMI payment is the largest at the beginning of the loan term. The principal portion of the payment increases as the loan period lengthens, while the interest component decreases.

Components of EMI

The principal repayment and interest payments are the two components of an EMI. For the first few years, a sizable portion of the EMI is made up of the interest payment. The principal amount, rather than the interest expense, makes up the majority of the EMI payment at the end of the loan term.

Schedule for Paying Off a Loan

An installment schedule for your loan will be provided to you by the lender once you have been approved for one. An EMI payment plan for the duration of the loan term is shown in a table along with the loan amount. It is simple to examine how much of an EMI payment is used to the principal and how much is applied to interest using the loan amortization chart.

You can figure out how the debt is being repaid and how much is still owed using this amortization plan. The amortization plan for the loan displays details such as the duration of the payment period, the EMI, the interest, the principal payment, and the remaining balance. This loan repayment table can be used to calculate whether to foreclose on the loan or refinance it.

Top Factors that Affect Your EMI Amount

There are many factors that rule the calculation and the monthly installment amount. Let us have a look at them in detail:

1. The Borrowed Amount

A loan amount is an amount borrowed by a borrower. It can be for any purpose, like buying a gadget or meeting some personal expenses. However, if you are taking a loan, you are asked to pay some amount as a down payment and the remaining amount in monthly installments, EMIs. Thus, the amount of loan you avail has a major impact on your EMI amount.

2. Prepayment of Loan

Along with the borrowed or loan amount, one of the major factors that affects the EMI amount is the prepayment of the loan. Many financial institutions charge a penalty for prepaying or foreclosing on a loan in advance. If you decide to prepay your loan with the surplus funds, then it can affect the EMI as well as interest.

2. Prepayment of Loan

Along with the borrowed or loan amount, one of the major factors that affects the EMI amount is the prepayment of the loan. Many financial institutions charge a penalty for prepaying or foreclosing on a loan in advance. If you decide to prepay your loan with the surplus funds, then it can affect the EMI as well as interest.

3. Down Payment Amount

The amount that you decide to pay as a down payment can impact your monthly installment. The more down payment amount the less will be your EMIs. If you manage to pay a high amount as a down payment then you can considerably lessen your EMIs.

4. Interest Rate Charged by the Lender

The interest rate applicable on the borrowed amount varies from lender to lender. Generally, the interest rate is added on the borrowed amount. The rate of interest has a major impact on the EMI calculation. The lower the interest rate, the lesser the EMI amount. Thus, it is recommended to do comprehensive research and opt for the best deal to save considerable money on interest to be paid.

5. Loan Tenure

The tenure of your loan also affects your EMI amount. The lender agrees with a borrower to pay off the loan within the given timeframe at an agreed rate of interest. The higher the interest rate, lower is the tenure of the loan, and vice versa. Thus, you may find it difficult to repay the loan due to its high-interest rate in the short term. You can opt for a comfortable tenure with a reasonable interest date to strike the perfect balance. You can check online EMI calculators to get a fair idea about EMI calculation and the role of loan tenure in EMI amount.

You may also read this: Short Term Loan on Aadhar Card

How Can Your Calculate EMI for Your Loan

The EMI Calculation formula is easy and based on simple math. Monthly payment = p * r * (1 + r) n/ (1 + r) n - 1). In this equation, P is the amount of the main loan, R is the rate of interest that the lender charges, and N is the number of months that the loan will last.

For Example, if you take out a loan for Rs. 1 lakh with an interest rate of 12% and a loan term of 12 months.
Here is how the EMI for the same will be calculated:
EMI = p × r × (1 + r) n/ ((1 + r) n - 1)
EMI = 1 lakh x 12 x (1 + 12) 12/ ((1+12)12-1
EMI =₹8,885
The total interest will be ₹6,619.
Total payment including borrowed mount and interest will be ₹1,06,619

Additional Factors That Can Impact Your EMI Amount

The Interest Rate Computation

The EMI payments are also influenced by the sort of interest rate on the loan you obtained.
There are two types of interest on loans:

  • Loans with fixed interest rates: Over the course of the loan, EMI payments for loans with fixed interest rates remain constant.
  • Loan with floating interest rates: On the other hand, when a loan has a floating interest rate, the EMI adjusts according to how the interest rate shifts as the market shifts. You should weigh the advantages and disadvantages of the various interest rates before taking out a loan.

Why You Must Use a Calculator to Know Your EMI Amount

Calculating EMI individually can be time-consuming and error-prone. As a result, businesses have created an EMI calculator that you may use online to determine the amount of your loan monthly. The EMI calculator is free, straightforward, and easy to use. To receive precise answers, all you need to do is enter the principal loan amount, the interest rate, and the loan term before clicking the Calculate button.

You can establish the ideal debt-to-income ratio to make payments at by calculating the loan EMI in advance. Because loans are easy to obtain, those who don't have a lot of money can purchase more items. Moreover, loans play a significant role in everyone's life and help us to achieve goals in life.

What is an EMI Calculator?

An EMI calculator is a digital tool that figures out the amount of your equated monthly instalment (EMI) based on the information you enter, such as the loan amount, loan term, and interest rate. The tool lets borrowers find out how much they have to pay each month in EMI. There are many different kinds of EMI calculators, such as personal loan EMI calculators, EMI calculators for home loans, and education loan EMI calculators, to name a few.

EMI Calculator Benefits

Financial planning

The online EMI calculator is helpful because it helps you figure out how much you spend each month and makes it easier to budget for other investments.


Because the calculations are done by computer, you can be sure that the results are correct and that you know exactly how much you need to pay the lender.

Easy to use

You don't have to go to a bank to use this online calculator, a handy tool you can use anywhere and at any time.

Saves Time

The online EMI calculator saves you time because you don't have to figure out how much your loan will cost by hand. Instead, you can get an answer right away.

It's Easy to Compare

You can easily compare different loan offers. By entering the amount, you want to borrow, and how long you want to borrow it for, you can try different combinations and compare the results to make an informed choice.


Overall, easy monthly installments, also known as EMIs, are a way for individuals to pay off large purchases over time by making smaller payments on a regular basis. EMIs make it easier for people to afford big-ticket items such as a car or a house, as they can spread the cost of the purchase over several months or years. However, it is essential to employ a holistic approach and use the EMI calculators to arrive at definite EMI amount and make an informed decision.

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