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EMI Formula:
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EMI (Equated Monthly Installment) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. It is used to pay off both interest and principal each month, so that over a specified number of years, the loan is paid off in full.
The calculator uses the EMI formula:
Where:
Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term, accounting for compound interest.
Details: Accurate EMI calculation helps borrowers understand their monthly financial commitments, plan their budgets effectively, and compare different loan offers from various lenders.
Tips: Enter the principal loan amount in ₹, annual interest rate in percentage, and loan term in years. All values must be valid (principal > 0, interest rate ≥ 0, loan term ≥ 1 year).
Q1: What factors affect EMI amount?
A: EMI amount is primarily affected by three factors: principal amount, interest rate, and loan tenure. Higher principal or interest rate increases EMI, while longer tenure reduces EMI.
Q2: Can EMI change during loan tenure?
A: For fixed-rate loans, EMI remains constant. For floating-rate loans, EMI may change if interest rates change during the loan period.
Q3: What is the difference between reducing balance and flat interest rate?
A: Reducing balance method calculates interest on outstanding principal, while flat rate method calculates interest on original principal throughout the loan term, making flat rate more expensive.
Q4: How does prepayment affect EMI?
A: Prepayment reduces the outstanding principal, which can either reduce your EMI amount or shorten your loan tenure, depending on the terms of your loan agreement.
Q5: Are there any hidden charges in EMI calculations?
A: The basic EMI calculation doesn't include processing fees, insurance premiums, or other charges that lenders may add. Always check the full cost breakdown from your lender.