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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 repayment obligations, plan their finances, and compare different loan offers. It's essential for budgeting and financial planning.
Tips: Enter the principal amount in currency units, monthly interest rate as a decimal (e.g., 0.01 for 1%), and loan term in months. All values must be positive numbers.
Q1: How is monthly interest rate calculated from annual rate?
A: Monthly rate = Annual rate ÷ 12. For example, 12% annual rate = 0.01 monthly rate (0.12 ÷ 12).
Q2: What happens if I pay more than the EMI?
A: Extra payments typically reduce the principal faster, potentially shortening the loan term or reducing future EMIs.
Q3: Are there different EMI calculation methods?
A: Yes, the flat rate method and reducing balance method. This calculator uses the reducing balance method which is more common.
Q4: Can EMI change during the loan term?
A: For fixed-rate loans, EMI remains constant. For floating-rate loans, EMI may change when interest rates change.
Q5: What factors affect EMI amount?
A: Principal amount, interest rate, and loan term are the primary factors. Higher principal or rate increases EMI, while longer term reduces EMI.