# EMI Calculator

## Definition

An equated monthly installment (EMI) is the amount of money payable every month by borrowers to lender of the loan until the loan amount is fully paid off. EMI comprises of two variable components those are principal amount and interest rate.

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.

The interest component of the EMI would be larger during the initial months and gradually reduce with each payment. The exact percentage allocated towards payment of the principal depends on the interest rate. So, if you think you have paid half of the amount borrowed from the bank in 5 years in a 10 year loan tenure that would not be the case. You would probably have reduced the total interest component due considerably and would have only repaid the interest component. With each successive payment, you’ll pay more towards the principal and less in interest.

Lenders offer two different types of payment depending on what you opt for – fixed rate or floating rate.

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

##### Factors affecting EMI

The EMI depends on following factors:

• Loan amount : This stands for the total amount that has been borrowed.
• Interest rate : This stands for the rate at which the interest is charged on the amount borrowed.
• Tenure of loan : This stands for the agreed loan repayment time-frame between the borrower and the lender

## Formula

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

Here’s the formula to calculate EMI:

E = P * r * { (1 + r)n / ((1 + r)n – 1) }

Where:

 E EMI P Principal Loan Amount r Rate of interest calculated on monthly basis n loan term / tenure / duration in number of months

For Example:

What would be EMI amount if you borrow 10,00,000 \$ from the bank at 11% annual interest for a period of 15 years (i.e., 180 months) ?

Sol. :

Loan amount (P) is \$10, 00,000/-

Interest rate (r): 11/12/100= 0.0091

Loan period (n) = 15 years= 180 months

E = P * r * { (1 + r)n / ((1 + r)n – 1) }

E = (10,00,000 * 0.0091) * {(1 + 0.0091)180 / ((1 + 0.0091)180 – 1)}

E = 11,365.96\$ per month

Summary:

 Total amount payable 11, 365.96 * 180 = 20,45872.8 \$ Interest Payable 20,45872.8 \$ – 10, 00,000 \$ = 10,45872.8 \$

## Units

Unit for all Amounts depends on the region/country. Standard Unit is the local currency for which EMI calculation is made.