EMI Calculator – Equated Monthly Installment

By Oghenekaro Elem
Last updated: Sep 14, 2021

EMI calculator is an easy-to-use financial planning tool for anyone considering taking a loan 👩‍💻. When you take a loan from a financial institution — assuming it is not a payday loan with a high annual percentage rate — you control for how much you want the loan principal and loan tenure to be, while the loan provider determines the interest rate. You must make sure you can pay back the loan without struggle. That's where EMI comes in.

By simply inputting your loan values, this EMI calculator automatically determines how much you need to pay as your personal loan EMI ✌, car loan EMI calculator 🚗 or home loan EMI calculator 🏠, etc.

If you want to take a student loan towards education, make sure you first check out the 529 loan calculator to invest in education tax-free. Otherwise, the EMI calculator is the perfect place to start when comparing different loan options for lenders 😎. This article explains what EMI means and how to calculate EMI.

If you are about to suspend your EMI payment, check our moratorium calculator, where you can check the effect of a moratorium on your repayment.

What is EMI? — EMI definition

What does the EMI stand for? EMI stands for equated monthly installment. It is the amount you pay monthly to a loan provider until you pay off the debt. As long as you do not prepay the loan, the EMI remains fixed for the entire loan term. Thus, you can define EMI as the monthly installment of the principal portion of the loan amount and interest.

In the initial years of the loan term, a higher percentage of the EMI goes towards paying off the compounding interest. But as you repay the loan, the portion that goes towards the principal payment gradually increases because EMIs get calculated on a reducing balance method.

It is also important to note the impact of interest rate and loan term on the equated monthly installments. High interest rates result in high EMIs and vice-versa. Similarly, a short loan term increases the EMI and vice-versa.

How to calculate EMI? — Equated monthly installment formula

The formula to calculate EMI is:

EMI = P * r * (1 + r)n / ((1 + r)n - 1),

where:

  • P — Principal loan amount;

  • r — Rate of interest; and

  • n — Number of monthly installments / Loan term.

Example:

Assuming you borrow ₹10,000,000 from the bank at 10% annual interest for ten years. You can estimate your monthly repayments using the EMI formula:

  • P = ₹10,000,000;

  • r = 10% per annum = 10% / 12 months = 0.833% per month

    = 0.833% = 0.833 / 100 = 0.00833;

  • n = 10 years = (10 * 12) months = 120 months.

EMI = P * r * (1 + r)n / ((1 + r)n - 1)

EMI = 10,000,000 * 0.00833 * (1 + 0.00833)120 / ((1 + 0.00833)120 - 1)

EMI = ₹132,150.74

That means that you will pay ₹132,150.74 for 120 months to repay the entire loan amount.

With the home loan EMI calculator, computing EMI for different scenarios is automatic 🙂. You only have to input the figures to get your results instantly. Hence, you can ascertain if a monthly EMI is affordable or not and plan your finances without hassle 😉.

How to use the EMI calculator?

To evaluate the EMI for a home loan, car loan, personal loan, education loan, or any other fully amortizing loan using this calculator, all you have to do is follow these steps:

  • Enter Principal loan amount — How much you are borrowing or already borrowed;

  • Input Loan term — How long you have to pay back the loan; and

  • Provide the Interest rate — The annual rate of interest on the loan to calculate the EMI amount.

  • You can also work out the value of any of the previous three parameters if you already have an EMI amount in mind. The EMI calculator computes your results either way. Now that you know what EMI is, you can try different scenarios to find the right EMI option that aligns with your financial goal.

As soon as any of the values are changed, the EMI calculator will generate your monthly EMI loan payment.

FAQ

What is EMI? What does EMI mean? What does EMI stand for?

EMI stands for Equated Monthly Installment. It is the total amount a borrower is required to pay off a loan, divided equally each month of the loan term. Calculating EMI helps a borrower plan their personal budget and monthly expenditure towards an outstanding loan.

How do I calculate monthly EMI?

To calculate monthly EMI:

  1. Determine the Principal loan amount.

  2. Find the Monthly interest rate.

  3. Estimate the Number of months for each EMI payment in the loan term.

  4. Apply the EMI formula to calculate the precise monthly EMI amount:

  • Add unity to the monthly interest rate and raise it to the power of the number of months.
  • Multiply the calculated value above with the product of the principal loan amount and monthly interest rate - the result is your nominator in the EMI formula.
  • Again, add unity to the monthly interest rate and raise it to the power of the number of months, but this time, subtract unity from the calculated value - the result is your denominator in the EMI formula.
  • Finally, divide the nominator by the denominator to get the monthly EMI amount.

Can my EMI change during the loan term?

Yes, your EMI can change during a loan term. There are two main types of EMIs based on the interest rate:

  • Floating rate EMI — Interest rate changes depending on market conditions. That means, depending on the market or economic conditions, EMI can change with the impending interest rate. It is relatively cheaper to initiate.

  • Flat rate EMI — The more common type of loan EMI, with fixed interest rates throughout the loan term. This EMI remains the same irrespective of market conditions.

What happens when the floating interest rate increases or decreases during the loan term?

When the floating interest rate increases during the loan term, the loan repayment prolongs to keep the EMI amount the same. If it decreases, the loan gets repaid sooner. The changes to the loan term with floating interest rate are because the EMI payments cover both interest and principal payment of the loan.

How does the floating rate impacts my EMI calculation?

It doesn't. EMI calculation remains the same throughout the loan term. But floating rate impacts the loan term. An increase in the floating interest rate means a rise in accruing interest and a longer loan term to pay off the loan with the calculated EMI amount. If the floating rate decreases, a higher portion of the EMI goes towards paying off the loan principal, and less interest is accrued.

What happens if I prepay the loan?

If you prepay the loan, you'll pay off the loan sooner and pay less interest to the lender. For most EMI payments, there are no penalties for prepayments. You can also choose to prepay a loan and pre-close your debt completely, but it may negatively impact your credit score since lenders prefer to access the accruing interest on loans.

How do missing EMI payments impact my loan schedule?

It is never advisable to miss your EMI payment. But if you do so, the loan term increases. To keep the loan term unchanged, you will need to increase the EMI amount. It is better to plan appropriately with the loan calculator before committing to any loan schedule because if you miss payments, it negatively reflects your creditworthiness. And you may not be able to get a good deal from loan providers with a bad credit score.

Oghenekaro Elem
Principal loan amount
$
Loan term
yrs
mos
Interest rate
%
Result
EMI
$
Total amount payable
$
Total interest due
$
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