What is EMI?
Equated Monthly Installment, or EMI for short, is the fixed amount you pay each month to a bank or financial institution until the entire loan is repaid. This amount includes both the interest on the loan and a portion of the principal. The total sum of the principal and the interest is divided by the loan's tenure, which is the number of months you have to repay the loan. You pay this fixed amount every month. In the beginning, a larger part of your EMI goes toward paying the interest, while the part that goes toward the principal is smaller. As you make payments over time, the interest portion decreases and the principal portion increases. The exact share of each component depends on the interest rate. Even though your monthly EMI remains the same, the amount going toward interest and principal changes with each payment. With every payment, you end up paying more of the principal and less of the interest.
Here's the formula to calculate EMI:
where
E is the EMI
P is the Principal Loan Amount
r is the rate of interest calculated on monthly basis. (i.e., r = Rate of Annual interest/12/100. If ROI(rate of interest) is 10.5% per annum, then r = 10.5/12/100=0.00875)
n is loan term / tenure / duration in number of months
For example, if you lend ₹10,00,000 from the bank at 10.5% annual interest for the period of 10 years (which is 120 months), then EMI = ₹10,00,000 * 0.00875 * (1 + 0.00875)120 / ((1 + 0.00875)120 - 1) = ₹13,493. i.e., you must have to pay ₹13,493 for 120 months to pay back to Bank. The total amount that you give bank will be ₹13,493 * 120 = ₹16,19,220 that includes ₹6,19,220 as interest toward the loan.
Calculating EMI for different sets of principal loan amount, interest rates and loan term using the above EMI formula either manual or excel is time consuming, though and might return error. Scrut N Learn provide you the EMI calculator that automates this calculation for user and gives the result in as fast as you blink with the charts and demographics and the break-up of entire payment.
How to Use EMI Calculator?
With colorful charts and immediate results, our EMI Calculator is simple to use, easy to understand, and fast to operate. You can use this calculator to determine the Equated Monthly Installment (EMI) for various types of loans such as home loans, car loans, personal loans, education loans, or any other fully amortizing loan.
To use the EMI Calculator, enter the following information:
- Principal loan amount you wish to enter (rupees)
- Loan term (in months or years)
- Rate of interest (in %age)
- EMI in arrears OR EMI in advance (for car loan only)
You can adjust the values in the EMI calculator form using the slider. If you need to input more accurate values, you can type them directly into the relevant fields provided above. As soon as you change the values using the slider, or after pressing the 'tab' key following direct entry in the input fields, the EMI calculator will recalculate your monthly payment (EMI) amount.
A pie chart is also displayed, showing the breakdown of total payments, i.e., the total principal versus the total interest payable. It illustrates the proportion of total interest relative to the principal amount in the overall sum of all payments made against the loan. Alongside this, a payment schedule table is shown, displaying monthly or yearly payments over the entire loan period. A separate chart also shows the interest and principal components paid each year. Part of each payment goes towards interest while the remaining part reduces the principal balance. In the early stages of the loan, a significant portion of each payment covers interest. As time progresses, a larger part of each payment contributes to paying down the principal. The payment schedule also includes the outstanding balance at the end of each year, which is carried forward to the next year.
Would you like to make partial prepayments to shorten your home loan duration and lower your total interest payment? Use our.Home Loan EMI Calculator with Prepayments. If you want to calculate how much loan you can afford or find out the difference between the advertised and actual interest rate (along with the loan APR) for a purchase, you can use our loan calculator..
Floating Rate EMI Calculation
We recommend that you calculate the EMI for a floating or variable rate loan by considering two different scenarios: an optimistic (deflationary) scenario and a pessimistic (inflationary) scenario. The loan amount and the loan tenure are the two factors you need to consider for calculating the EMI, and these are under your control. That means you decide how much loan you need to take and for how long. However, the interest rate is determined by the banks and & HFCs, based on the rates and policies set by them. RBI. As a borrower, it's important to think about the best and worst case scenarios regarding changes in interest rates. You should calculate your Equated Monthly Installment (EMI) under both a lower and higher interest rate situation. This will help you determine how much EMI you can comfortably afford, how long your loan period should be, and how much you should take as a loan.
Optimistic (deflationary) scenario: Imagine that the interest rate decreases by 1% to 3% compared to the current rate. Consider this situation and calculate your EMI. In this case, your monthly payment might reduce, or you could choose to shorten the loan term. For example, if you take a home loan to buy a property for investment purposes, considering this best-case scenario allows you to compare it with other investment options.
Pessimistic (inflationary) scenario: Similarly, think about the possibility of the interest rate increasing by 1% to 3%. Can you still manage your EMI without facing much difficulty? Even a small 2% rise in the interest rate can lead to a noticeable increase in your monthly payment throughout the loan period.
By performing these calculations, you can prepare for potential future changes. When you take a loan, you are making a long-term financial commitment, which can span months, years, or even decades. Therefore, it's wise to consider both the best and worst possible situations and be ready for either. In short, always hope for the best, but also be prepared for the worst.