EMI Calculator

What is an EMI Calculator?

An EMI calculator is a financial tool used to calculate the monthly payment that needs to be made towards a loan. This installment amount is typically paid every month over a specified period until the loan is fully repaid. The EMI amount includes both the principal amount and the interest on the loan.

How Does an EMI Calculator Work?

EMI calculators are commonly used for various types of loans, such as home loans, personal loans, car loans, and more. Here’s how an EMI calculator typically works:

1. Loan Amount: This is the total amount of money you are borrowing.
2. Interest Rate: The rate of interest that the lender charges on the loan. It can be either fixed or floating.
3. Loan Tenure: The period over which the loan will be repaid. In India, this is usually expressed in months.
4. Calculation Formula: The EMI is calculated using the following formula:

EMI = ^{P × r × (1 + r)n} / _{(1 + r)ⁿ – 1}

Where:

• P = Principal loan amount
• r = Monthly interest rate (Annual Rate of Interest divided by 12 and then divided by 100)
• n = Loan tenure in months

Types of EMI Calculations

1. Flat Rate EMI: Here, the interest is calculated on the entire principal amount throughout the loan tenure without considering the amount that has already been paid.
2. Reducing Balance EMI: The interest is calculated on the outstanding loan balance, which reduces as you repay the loan. This is more common in India, especially for home and personal loans.

Steps to Use an EMI Calculator

1. Input the Loan Amount: Enter the total loan amount you are planning to borrow.
2. Enter the Interest Rate: Input the rate of interest offered by the lender.
3. Select the Loan Tenure: Choose the period over which you plan to repay the loan.
4. Calculate: The EMI calculator will automatically compute the EMI amount, the total interest payable, and sometimes even provide an amortization schedule, showing the breakdown of principal and interest paid over time.