What is EMI?
EMI stands for Equated Monthly Installments – A fixed amount payable on a monthly basis towards repayment of a loan taken from a Financial Institution. This fixed amount or monthly installments are payable over a period of time defined as the tenure, or otherwise the time to completely pay back the loan availed. The loan in question is any type of structured loan product offered by a Financial Institution, such as Personal Loan, Home Loan, Mortgage loan or Loan against property, Business Loan, Car Loan, etc.,
What are the Components of an EMI? EMI constitutes of the following:
Principal – This is the total amount availed as loan under different types of loan products as afore-mentioned Rate of Interest – The interest rate charged by the bank, which is offering the loan Tenure – The period of time designated for repayment of the entire Principal amount + Interest amount payable on the principal.
How to Calculate EMI?
The formula for calculating EMI is
E is EMI
P is Principal Loan Amount
r is Rate of Interest on the Loan (This is converted into monthly Rate by dividing it by 12)
n is Loan Tenure / Term
This EMI formula is valid for calculating EMI of any loan whether, home loan, personal loan, loan against property, business loan and other loans as well.
Let’s see an example for this, if you borrow Rs.1, 00,000/- from a bank @ 10% Rate of Interest for a Period of 2 years (i.e. 24 months), then EMI = 100000.10%/12. (1+10%/12)^24/ ((1+10%/12) ^24 – 1)
The final result would be Rs.4614/-, which is the amount, payable for 24 months in order to completely repay the loan borrowed. If you calculate 4614.24, then the answer would be Rs.110736/-, i.e., the borrowed Principal amount of Rs.1, 00,000/- & additional interest of Rs.10736/- payable on the borrowed principal.
Why should I go with EMI option? Is there a better alternative available?
Suppose let’s assume, you aspire to buy a dream home for yourself that costs Rs. 20 Lacs. If you don’t have the entire amount available, but still hold a stable occupation and by result of which a stable income for present & future, then you can still buy your dream home by availing a Home Loan from any Bank/Financial Institution and repay the loan as monthly home loan EMI gradually over a period of time.
Hence EMI gives you an option to leverage your current income to realize your dreams/aspirations that are beyond your current income. EMI also puts in a financial discipline by committing you to park a certain amount of your monthly income for repaying towards a loan taken from a Bank. This will streamline the overall repayment of the loan, thereby making the whole process automatic. You can even compare the loan eligibility before taking loan with Loan Eligibility Calculator.
How to use the EMI Calculator?
The EMI calculator uses smart & intuitive graphical images to display how the loan amortization works for a given loan amount. It shows a complete EMI chart which figures out complete information about interest and balance left for the subsequent years. You have the flexibility to toy with an experimental value with respect to Loan Amount, Rate of Interest & Tenure, and accordingly the graph & tables would show you the exact details of how the EMI & related Principal/Interest calculation works.
The EMI calculator is common for all types of loans such as Home Loan, Personal Loan, Mortgage or Loan against Property, Business Loan, etc.
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