EMI Calculator

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EMI Summary

Quick Jump:📖 How It Works📐 Formula❓ FAQs💡 Tips

📖 How EMI Calculation Works

An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.

1️⃣

Principal Component

A portion of your EMI goes towards repaying the original loan amount. This portion increases over time.

2️⃣

Interest Component

The rest of the EMI pays the interest on the outstanding loan balance. This portion decreases over time.

3️⃣

Reducing Balance

Interest is calculated on the reduced principal balance each month, saving you money compared to flat rates.

📐 EMI Calculation Formula

Standard EMI Formula

EMI = [P × R × (1+R)^N] / [(1+R)^N - 1]

Where:

  • P = Principal loan amount
  • R = Monthly interest rate (Annual Rate ÷ 12 ÷ 100)
  • N = Loan tenure in months

Example Calculation:

For a ₹10,00,000 loan at 9% interest for 10 years (120 months):

  • P = 10,00,000
  • R = 9 ÷ 12 ÷ 100 = 0.0075
  • N = 120
  • EMI = ₹12,668

❓ Frequently Asked Questions

How can I reduce my EMI?▼

You can reduce your EMI by:

  • Increasing the loan tenure (this increases total interest paid)
  • Making a larger down payment to reduce the principal amount
  • Negotiating a lower interest rate with your lender
  • Opting for a step-down EMI plan if available
Does prepayment reduce EMI or Tenure?▼

Most banks allow you to choose. By default, prepayments reduce your tenure (loan duration), which saves you the most interest. However, you can request the bank to reduce your monthly EMI instead while keeping the tenure same, which improves your monthly cash flow.

What is a Moratorium period?▼

A moratorium is a temporary holiday from paying EMIs, often offered for education loans during the study period or during financial crises. However, interest continues to accumulate during this period and is added to your principal (capitalized), increasing your future EMIs.

Fixed vs Floating Interest Rate - which is better?▼

Floating rates are linked to market benchmarks (like Repo Rate) and can go up or down. They are generally cheaper than fixed rates. Fixed rates remain constant for the entire tenure, offering predictability but usually at a premium. For long-term loans like home loans, floating rates are typically recommended.

💡 Smart EMI Tips

Prepay Early

Making prepayments in the early years of your loan saves significantly more interest than prepaying later, as the interest component is highest at the start.

One Extra EMI

Paying just one extra EMI every year can reduce your loan tenure by several years and save huge amounts in interest.

Check for Hidden Charges

Always check for processing fees, prepayment penalties, and foreclosure charges before signing the loan agreement.

Keep EMI < 40% Income

Financial experts recommend that your total EMIs should not exceed 40% of your monthly take-home income to maintain financial stability.