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What Is EMI And How Is It Calculated?
Posted on Wednesday, February 28th, 2018 | By IndusInd Bank
With the increasing cost of living and high inflation, it has become challenging to make significant purchases without putting strain on the household budget. Loans offer a way to fulfill our dreams by providing funds for buying a range of products. There are variety of loans such as home loan, car loan, personal loan, two-wheeler loan, and more. While getting a loan has become easier than ever, it is essential to understand the basics of borrowing before deciding to take a loan
The most critical aspect of a loan is the repayment process, which involves paying fixed monthly installments known as EMIs over a specific period. The value of an EMI varies based on the loan amount, interest rate, and tenure.
The two primary components of an EMI are the principal amount and the interest charged on it. While the interest component accounts for a more significant portion of the EMI during the initial stages, the contribution towards repaying the principal loan amount becomes more significant as the loan tenure progresses.
By using a loan amortization schedule, which breaks down each EMI payment into principal and interest components, you can keep track of your loan payments and reduce the cost of your loan. The schedule provides information on the outstanding loan amount, the time period of each payment, and the interest and principal amount to be repaid. You can use this information to refinance your loan or opt for pre-closure, which is advisable in the early stages of the loan tenure.
Personal Loan EMI Calculator
If you are to calculate personal loan EMIs, a simple mathematical formula can be used that considers the principal amount, interest rate, and tenure.
EMI = P x R x (1+R)n/ (1+R)n-1
Here:
P is the Principal Amount,
R is the Rate of Interest, and
n is the Tenure in months
However, the exact EMI amount might vary slightly depending on factors such as floating interest rates, which are determined by prevailing market rates, and prepayments that reduce the principal amount and the interest charged on it.
The EMI feature of loans allows for convenient monthly payments and enables you to choose a loan amount and repayment scheme that suits your resources. By understanding the basics of EMIs and using a loan amortization schedule, you can make informed decisions about loan repayment, reduce the cost of your loan, and achieve your dreams without disrupting your household budget.
IndusInd Bank offers instant personal loans at attractive rates of interest. You can easily apply on their website and get quick disbursals.
