How can i calculate EMI on my Loan - New Changes

An equated monthly installment, referred to as EMI, is an integral part of availing any retail loans offered by lending institutions. However, the calculation process to estimate how much you can actually afford can be difficult.

An EMI calculator can help borrowers estimate their monthly payments of loans based on the principal amount, interest rate, tenure, and other factors.

Formula to Calculate EMI on Loans

EMI is a monthly sum of the principal amount plus the interest rate to repay the loan over a period of time. Remember, the formula to calculate EMI is similar for most retail loans, like home loans and car loans. Let’s calculate the EMI with an example:

Say, X has availed a loan of $ 10 lakh to build a house. The bank has offered X a home loan at an annual interest rate of 7.2% (floating) for a tenure of 10 years, then the EMI he will be paying on a monthly basis is calculated using the following formula:

P x R x (1+R)^N / [(1+R)^N-1]

P: Principal loan amount = $ 10,000,00

N: Loan tenure in months = 120 months

R: Interest rate per month [7.2/12/100] = 0.006

EMI= $ 10,00,000 * 0.006 * (1 + 0.006)120 / ((1 + 0.006)120 – 1) = $ 11,714.

Therefore, X would be paying the EMI of $ 11,714 every month for 10 years. Overall, the total payment X will pay is $ 14,05,702, of which $ 4,05,702 would be the total interest charged on the principal borrowed sum.

Lending institutions may as well show the break up between the interest rates and principal components using a loan amortization schedule to help borrowers examine their EMI payments. Given the aforementioned scenario, the tabular shows the monthly schedule of the first 12 EMI payments as well as the break up between interest and principal components to be paid by X.