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EMI Formula:
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The EMI (Equated Monthly Installment) calculation determines the fixed monthly payment amount for a loan, which includes both principal and interest components. It helps borrowers understand their repayment obligations over the loan term.
The calculator uses the EMI formula:
Where:
Explanation: The formula calculates the fixed monthly payment required to pay off a loan over a specified period, accounting for both principal and interest.
Details: Accurate EMI calculation is crucial for financial planning, budgeting, and understanding the total cost of borrowing. It helps borrowers compare different loan offers and make informed decisions.
Tips: Enter the principal amount in currency units, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and loan term in months. All values must be positive numbers.
Q1: How is monthly interest rate calculated from annual rate?
A: Divide the annual interest rate by 12 (months). For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.
Q2: What factors affect EMI amount?
A: EMI is affected by principal amount, interest rate, and loan duration. Higher principal or rates increase EMI, while longer terms decrease EMI but increase total interest paid.
Q3: Can EMI change during the loan term?
A: For fixed-rate loans, EMI remains constant. For variable-rate loans, EMI may change when interest rates fluctuate.
Q4: What is the difference between reducing balance and flat interest rate?
A: This calculator uses reducing balance method where interest is calculated on outstanding principal. Flat rate calculates interest on original principal throughout the term, resulting in higher effective interest cost.
Q5: How does prepayment affect EMI calculations?
A: Prepayments reduce the outstanding principal, which can either reduce the EMI amount or shorten the loan term, depending on the lender's policies.