Precisely what is EMI?

(EMI Calculator) Equated Monthly Installment – EMI for short – could be the amount payable every month towards the bank or any other lender until the loan amount is fully paid off. It consists of the interest on the loan as well principal amount that is to be repaid. The sum of principal amount and interest is divided by the tenure that is number of months, in which the loan has to be repaid. This amount has to be paid monthly. The interest element of the EMI would be larger in the initial months and steadily reduce with each EMI. The exact percentage allocated towards payment of the principal depends on the interest rate. Even though you’re monthly EMI payment won’t vary, the proportion of principal and interest components will change with time. With every single successive payment, you’ll pay more towards principal and less in interest.

Here’s the formulation to calculate EMI:

Here:

E is EMI

G is Principal Loan Total

R is rate of interest calculated on month-to-month basis.

(R = Rate of Yearly interest. if rate of interest is 10. 5% yearly, then r = 10. 5/12/100=0. 00875)

n is loan term / tenure / duration in amount of months

Computing EMI with regard to different combinations of primary loan amount, interest rates and loan term using the above EMI formula by hand is time consuming, difficult and error prone. Loan EMI calculator automates this calculation to suit your needs and gives you the result in few seconds along with visual charts displaying payment schedule as well as the break-up of total transaction.

How to Use Loan EMI Calculator?

With colorful charts and instant results, Loan EMI Calculator is simple to use,  easy to understand and it is very quick. You’ll be able to calculate EMI for home loan, car loan, personal bank loan, education loan or any other loan using this EMI calculator.

You need to enter the following information in the EMI Calculator:

• Principal loan amount you would like to avail (rupees)
• Loan term (months or years)
• Rate of interest (percentage)
• EMI in advance OR EMI in arrears (for car loans only)

Use the slider to regulate the values in the actual EMI calculator form. If you want to enter more precise values in that case, you can type the values directly in the relevant boxes provided. As soon as the actual values are changed using the slider, EMI calculator will re-calculate your monthly payment (EMI) amount.

A pie chart depicting the break-up of total payment (electronic, total principal vs. total interest payable) will be displayed. It displays the percent of total interest versus principal amount from the sum total of all payments made contrary to the loan. The payment schedule table showing payments made on a monthly basis / year for the complete loan duration is displayed plus a chart showing interest and principal components paid each and every year. A portion of each payment is made for the interest while the remaining amount is applied towards principal balance. During original loan period, a large portion of each payment is devoted to interest. With passage of time, larger portions pay down the main. The payment schedule likewise shows the intermediate outstanding balance for each year which is to be carried over to the following year.

Floating Rate EMI Calculations

Floating / varying rate EMI  should be calculated by taking two opposite scenarios i. e., optimistic (deflationary) and pessimistic (inflationary) scenario. Loan amount and loan tenure,  both the components required in order to calculate the EMI are usually under your control that means you are going to decide how much loan you should borrow and how extended your loan tenure will be. But interest rate is determined by the banks & HFCs depending on rates and policies given by RBI. As a borrower, you should consider the 2 extreme possibilities of improve and decrease in the rate of interest and calculate your EMI in both the situation. Such calculation can help you decide how much EMI is usually feasible, how long your loan tenure needs to be and how much you need to borrow.

Optimistic (Deflationary) Scenario: Suppose that the rate of interest comes down by 1% – 3% from present rate. Consider this case and calculate your EMI.  In this situation, your EMI will come down or you may choose to shorten the loan tenure. For instance; If you avail loan to purchase a house for investment, then optimistic scenario enables you to compare this with other investment opportunities.

Pessimistic (Inflationary) Scenario: In the same way, suppose that the rate of interest is hiked by 1% – 3%. Is it possible for you to continue to pay the EMI devoid of much struggle? Even a 2% increase in rate of interest can result in significant rise in your monthly installment for the complete loan tenure.

Such calculation enables you to plan for such upcoming possibilities. When you take a loan, you are building a financial commitment for next couple of months, years or decades. So consider the best and worst cases and be prepared for both.

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