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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. EMIs are 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 standard EMI formula:
Where:
Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term, including both principal and interest components.
Details: Accurate EMI calculation helps borrowers understand their monthly financial commitment, plan their budget effectively, and compare different loan options before making borrowing decisions.
Tips: Enter the principal loan amount, annual interest rate (in percentage), and loan tenure in months. All values must be positive numbers.
Q1: What factors affect EMI amount?
A: EMI amount is determined by three main factors: principal amount, interest rate, and loan tenure. Higher principal or interest rates increase EMI, while longer tenures reduce EMI.
Q2: Can EMI change during the loan period?
A: For fixed-rate loans, EMI remains constant. 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 outstanding principal, while flat rate calculates interest on original principal throughout the tenure. Reducing balance is more common and beneficial for borrowers.
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.
Q5: What is the ideal EMI-to-income ratio?
A: Financial experts generally recommend that EMI should not exceed 40-50% of your monthly income to maintain financial stability.