1. What is the Loan Interest Formula?

The loan interest formula calculates the total interest paid over the loan tenure by subtracting the principal amount from the total of all EMI payments made. This helps borrowers understand the true cost of borrowing.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( EMI \) — Equated Monthly Installment (INR)
• \( N \) — Number of monthly payments
• \( P \) — Principal loan amount (INR)
• \( I \) — Total interest paid (INR)

Explanation: The formula calculates the total amount paid over the loan term and subtracts the original principal to determine the interest cost.

3. Importance of Interest Calculation

Details: Understanding total interest cost helps borrowers compare loan offers, make informed financial decisions, and plan their repayment strategy effectively.

4. Using the Calculator

Tips: Enter EMI in INR, number of monthly payments, and principal amount in INR. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why calculate total interest on a loan?
A: It helps borrowers understand the true cost of credit beyond just the monthly payments and principal amount.

Q2: Does this formula work for all types of loans?
A: This formula works for fixed-rate loans with constant EMI payments. It may not be accurate for floating rate loans or loans with variable payments.

Q3: What factors affect total interest paid?
A: Interest rate, loan tenure, principal amount, and payment frequency all impact the total interest cost.

Q4: How can I reduce total interest paid?
A: Making higher EMI payments, opting for shorter tenure, or making partial prepayments can reduce total interest cost.

Q5: Is this calculation specific to Indian Bank?
A: While the formula is generic, it applies to standard loan products offered by Indian Bank and other financial institutions.