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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 months, 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 both principal and interest components.
Details: Accurate EMI calculation helps borrowers understand their monthly financial commitment, plan their budget effectively, and compare different loan offers to choose the most suitable option.
Tips: Enter the principal amount in currency units, annual interest rate as a percentage, and loan term in months. All values must be positive numbers.
Q1: What factors affect EMI amount?
A: EMI amount is primarily determined by three factors: principal amount, interest rate, and loan tenure. Higher principal or interest rate increases EMI, while longer tenure reduces it.
Q2: Can EMI change during the loan period?
A: For fixed-rate loans, EMI remains constant throughout the tenure. For floating-rate loans, EMI may change when interest rates change.
Q3: What is the difference between reducing balance and flat interest rate?
A: Reducing balance method calculates interest on the outstanding principal, while flat rate method calculates interest on the original principal throughout the loan term, resulting in higher effective interest.
Q4: How does prepayment affect EMI?
A: Prepayment reduces the outstanding principal, which can either reduce the EMI amount or shorten the loan tenure, depending on the borrower's preference and lender's policy.
Q5: Are there any hidden charges in EMI calculations?
A: The basic EMI calculation includes only principal and interest. However, borrowers should also consider processing fees, insurance premiums, and other charges that may affect the total cost of the loan.