Most people avail a loan to fulfil their essential life goals. The repayment of such loans is divided into EMIs (Equated Monthly Installments) to clear off the loan within a stipulated time frame. This EMI consists of two components, the principal amount and the interest rate. What Is An EMI? Loans have become an important
Most people avail a loan to fulfil their essential life goals. The repayment of such loans is divided into EMIs (Equated Monthly Installments) to clear off the loan within a stipulated time frame. This EMI consists of two components, the principal amount and the interest rate.
What Is An EMI?
Loans have become an important part of everyone’s life in today’s time. A loan is a financial agreement between you and a financing institution. Under this agreement, the lender gives a specific amount of money to you with the intent that the amount is paid back with interest as monthly installments over a predetermined period of time by the borrower.
How Are Loan EMIs Calculated?
Loan amount, tenure and interest rate are the three key parameters of a loan and these vary in the case of different loan providers. Your EMI is calculated in the following three ways:
- Mathematical formula
EMI = [P x R x (1+R)^N]/[(1+R)^ (N-1)],
In this formula the variables stand for:
P = principal or the amount borrowed
R = rate of interest (monthly) levied on the loan
N = tenure of repayment of the loan
This is the same formula an online EMI calculator uses to provide you with the correct EMI payable within seconds. Since this formula is universal, it can be applied to different kinds of loans.
- MS Excel
You can also calculate your sbi debit card EMI using an excel spreadsheet. In Excel, you will need to use the function ‘PMT’ for calculating your EMI. The formula that the EMI calculator in excel will use is: PMT (rate, nper, pv).
The variables in the above formula are:
rate = interest rate for the loan.
nper = total number of payments for the loan.
pv = present value/principal.
- Flat rate
In this method, the interest is always levied on the total loan amount, regardless of the principal amount that you have already repaid. For instance, if you have availed a loan of INR 1 Lakh at an interest rate of 8% p.a. for 3 years. According to the flat rate method, you will have to pay the interest on the total amount of INR 1 lakh. The formula to calculate EMI using flat rate method would be:
EMI = (Principal + Interest)/Period in Months
So the calculation would be:
Interest for one year = 8/100 x 100000= 8000
Interest for three years=8000×3=24000
EMI = (100000 + 24000)/36 = Rs 3444.44
- Online EMI Calculator
An online EMI calculator is a finance calculator available on the internet that can be used to calculate your EMIs, compare EMIs for different loans and different tenures. There are different types of EMI calculators for different loans like
- Car loan
- Home loan
- Personal loan
- Education loan
- Gold loan
Although every EMI calculator works on the same three variables, you can use the EMI calculator that caters to your requirement.
Why Choose An Online EMI Calculator?
- With online EMI calculators, you get easy access anytime, anywhere. You can also use it as many times as you want.
- Manual calculations may lead to mistakes and repeated calculations with such mistakes can lead to disastrous results. An online EMI calculator helps you make error-free calculations at the click of a button.
- When you know what your EMI is going to be in advance after using a no cost EMI calculator, you can plan your finances accordingly so that your monthly budget does not take a hit.
- Every type of loan has a specific type of calculator that you can use. Remember to not mix the calculators.
No matter what type of loan or EMI scheme you want to avail, be sure to use a calculator to check for your EMI amount before you finalise anything.