We all have come across the term EMI in everyday life. While buying any product, we get an option of the EMI Payment method. The full form of EMI is Equated Monthly Installment. Through this, one must pay a specific sum to the seller on a fixed date each month with a fixed interest rate. EMI calculator helps calculate the amount with its interest rate that a buyer needs to pay to the seller.

EMI Calculator is used to calculate home loans, car loans, bike loans, education loans EMI. In this article, you read about how to calculate EMI using EMI Calculator? What are factors affect the calculation? What is the formula used in EMI Calculation? Read on to find more.

What is an EMI?

Whenever we discuss loans, the first word that hit our mind is EMI. EMI stands for Equated Monthly Instalment, the monthly payments of a fixed amount that we pay for the loan taken. The good thing about EMI payments is that it includes both principal and interest of the loan amount. The interest portion adds the major portion of the EMI payment in starting stages. However, as we go forward with the loan tenure, the portion of the interest repayment portion reduces and the principal repayment portion increases.

Factors affecting EMI

EMI of a loan have three major factors on which it depends:

1. Loan Amount: This stands for the total amount or the principal amount that the individual has borrowed.
2. Interest Rate: It is a rate at which the interest is charged on the amount borrowed.
3. Tenure of the Loan: It is an agreed loan repayment time frame between the borrower and the lender.

EMI Calculator: Definition

EMI Calculator is a device that uses mathematical formulas and calculations to find out the EMI’s of the given data. It requires data like the principal amount, the rate of interest charged on that amount and the time you can return the amount in instalments. When you give this data in the EMI Calculator, it calculates the data as per the formula of EMI calculation, and within seconds, you’ll get the EMI you need to pay monthly.

Formula

By using the given formula one can calculate the EMI of the amount, Check the formula here:

$E=P\times r\times \frac{(1+r{)}^n}{\left(\right(1+r{)}^n–1)}$

Where, E = EMI, P = Principal amount, r= rate of interest and n = Tenure in months.

Features of EMI Calculator:

1. An EMI calculator calculates the amount you need to pay as EMIs in seconds.
2. By knowing the EMI amount, you can plan your budget and spending.
3. You know the total amount that needs to be paid and the rate of interest charged.
4. It helps you to know the loan tenure that suits your budget.

How is EMI Calculated?

You have to use a mathematical formula to calculate EMI is: EMI = P × r × (1 + r)ⁿ/((1 + r)ⁿ – 1) where P= Principal amount, r= rate of interest, n=Tenure (in months).

Let assume a principal amount is Rs. 1 lakh with a 10% interest rate and 12 months tenure:

Principal Amount	₹100000
Interest Rate	10%
Tenure in months	12
EMI	8792

On these three factors, the EMI payments are directly proportional to the principal and interest and inversely proportional to the tenure of the loan. If the loan amount or interest rate is high then the EMI will also be high. If the tenure of the loan increases, then EMI payments decrease.

Example: if a borrower takes ₹10,00,000 from the bank at 10.5% annual interest for 10 years (i.e., 120 months), what will be the EMI?
Use the above formula and place the above given data:
EMI = P × r × (1 + r)ⁿ/((1 + r)ⁿ – 1)
then EMI = ₹10,00,000 × 0.00875 × (1 + 0.00875)¹²⁰ / ((1 + 0.00875)¹²⁰ – 1) = ₹13,493.
The monthly EMI ₹13,493 for 120 months takes to repay the entire loan amount.

Uses EMI Calculator

EMI Calculator is easy to use, spontaneous to understand and deliver the result in seconds. By using EMI Calculator you can find out EMI for a personal loan, home loans, car loans, education loans or any other loan using.

You need to put this information in EMI Calculator:

• Principal loan amount (rupees)
• Loan Tenure (months or years)
• Interest Rate (percentage)

Enter the values directly in the relevant boxes and then submit the data, EMI calculator will calculate your EMI amount within seconds. You can alter the data anytime as per your need and you’ll get the instant result with accuracy.

The payment schedule table also available for payments made every month/year of the entire loan duration is displayed.

Loan Amortization Schedule

It is a tabular presentation of the loan with the EMI payment. This table shows the break-up between the interest and principal components of a particular EMI payment. This schedule helps the person know how much the loan is paid and how much outstanding is left to be paid. It contains complete information of EMI Calculator like the time period of payment, EMI, interest, principal payment and the outstanding amount. If the borrower wants to foreclose the loan or refinance his loan, this Loan Amortization Schedule is very helpful in such cases.

Floating Rate EMI Calculation

A person needs to calculate the floating/variable rate EMI for two different cases: optimistic (deflationary) and pessimistic (inflationary). The two factors which you control regarding loan is the amount and tenure. It means you decide how much you will borrow and how long you can repay the loan, i.e. time. But the interest rate is varying in nature and determined by the banks & HFCs as per RBI guidelines. There can be two extreme possibilities of increase and decrease in the rate of interest as a borrower, and you have to calculate EMI under these two possibilities. This calculation type will let you know how much EMI is affordable, the time frame of your loan, and how much you shall borrow.

Optimistic (deflationary) case: Assume the interest rate drops by 1% – 3% from the present rate. Take this situation into consideration and then calculate your EMI. Your EMI will be reduced in this situation, or you may choose to shorten the loan tenure. For example, if you want to take a home loan to buy a house as an investment, an optimistic case enables you to compare this with other investment opportunities.

Pessimistic (inflationary) case: Opposite to the optimistic point, let assume that the interest rate is hiked by 1% – 3%. Is it feasible for you to pay the EMI without much struggle? Even a 2% rise in the interest rate can result in increase in monthly payment for the entire loan tenure.

This calculation helps you to plan for such future possibilities. For example, a loan made you make a financial commitment for the next few months or years or decades. So do take these cases for best and worst and be ready for both.

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FAQs

Q. How is EMI calculated?

A. Mathematically, EMI is calculated as under:
P x R x (1+R)^N / [(1+R)^N-1]
P = Principal amount of the loan
R = Rate of interest
N = Number of monthly instalments.

Q. What happens if the rate of interest decrease or increases during the loan tenure?

A. In a floating rate loan, if the interest rate reduces during the tenure, a higher amount is adjusted with the principal amount, and the loan gets repaid sooner. On the other hand, if the interest rate increases, then a larger portion is adjusted towards the interest rather than principle, which leads to a slight change in loan tenure, assuming the EMI is kept the same.

Q. How to use an EMI Calculator?

A. On this Embibe page, we have provided the steps to use an EMI Calculator and also provided the steps to calculate manually.

Q. What is the full form of EMI?

A. EMI Stands for Equated Monthly Instalment.

Q. What is the use of EMI calculator?

A. It is a utility tool, which finds the amount by mathematical calculation which you have to repay each month. EMI calculator can calculate the EMIs of a car loan, home loan, bike loan, or personal loan and all types of other loans within seconds.

The calculations are with you. So you can anytime calculate the EMI of the principal amount. Apart from this, we have a lot to know at embibe.com. So visit the website and start your learning.