What Is EMI? (Blog)

title: What Is EMI? date: '2023-10-27'

What Is EMI?

Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments 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.

How EMI Works

EMI is calculated based on:

  1. Principal Loan Amount: The amount you borrowed.
  2. Interest Rate: The rate at which interest is charged.
  3. Loan Tenure: The time period for repayment.

Formula

The formula to calculate EMI is:

E=P×r×(1+r)n(1+r)n−1E = P \times r \times \frac{(1 + r)^n}{(1 + r)^n - 1}

Where:

  • E is EMI
  • P is Principal Loan Amount
  • r is rate of interest calculated on a monthly basis (i.e., r = Rate of Annual interest/12/100)
  • n is loan tenure in number of months

Benefits of EMI

  • Financial Planning: Fixed payments help in budgeting.
  • Affordability: Allows buying expensive items and paying over time.
  • Flexibility: Choose tenure based on repayment capacity.

Suggested for you

Home Loan EMI Calculator
Calculate EMI, interest, tenure, and amortization schedule.