About Loan EMI Calculation
EMI (Equated Monthly Installment) is a fixed payment amount made by a borrower to a lender at a specified date each month. EMIs are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.
EMI Formula
The mathematical formula for calculating EMI is:
EMI = P × r × (1 + r)n / ((1 + r)n - 1)
Where:
- P = Principal loan amount
- r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
- n = Loan term in months
Types of Loans
- Home Loans: Used to purchase residential property.
- Car Loans: Used to finance the purchase of a vehicle.
- Personal Loans: Unsecured loans that can be used for various purposes.
- Education Loans: Used to finance higher education.
- Business Loans: Used to finance business operations or expansion.
Factors Affecting EMI
- Loan Amount: Higher loan amounts result in higher EMIs.
- Interest Rate: Higher interest rates increase the EMI amount.
- Loan Tenure: Longer loan terms reduce EMI but increase total interest paid.
- Processing Fees: Additional charges that may be added to the loan amount.