Finance

How is loan EMI calculation done?

Equated Monthly Instalment, or EMI, is the sum that must be paid to the NBFC or financial institution each month for any taken by the borrower. It is typically computed by adding the principal (the amount borrowed from the loan) and the interest component, then dividing by the number of months in the loan term.

An EMI’s make-up might vary from month to month. The interest component of the EMI reduces with loan vintage while the principal repayment component grows.

This fluctuation in the monthly payment amount is handled with EMI. In an EMI, the borrower makes a fixed monthly payment. However, using either technique would result in the same total amount of interest paid throughout the loan’s duration at the same interest rate, and P. A borrower does not have to calculate how much they must pay the lender each month when using the EMI technique for Personal Loan EMI. At the beginning of the loan period, the borrower gets informed of their EMI amount, which remains the same until the last payment.

Additional Read – 4 Lakh Personal Loan

EMI calculation formula:

E = P x r x (1 + r)n / ((1 + r)n – 1)), where E is the monthly interest payment and P is the principal loan amount. If the monthly interest rate is 14 per cent, for example, then n is the loan’s term in months, and r = 14/12/100=0.011667.

For instance, if you borrow INR 100,000 from the bank for three years (i.e., 36 months) at a rate of 14% a year, your EMI would be INR 100,000 * 0.011667* (1 + 0.011667)36 / ((1 + 0.011667)36 – 1) = $3418.

This indicates that it will take you 36 months to pay back the loan in full by making payments of 3418. Your total payback will be INR 1,23,039, made up of INR 1,000,000 in principle and INR 23,039 in interest.

Read Also – 3 Lakh Personal Loan

Conclusion

In conclusion, understanding how loan EMI calculation works is essential for responsible financial planning. By factoring in variables like loan amount, interest rate, and tenure, borrowers can anticipate their repayment obligations accurately. With the convenience of personal loan online applications, accessing EMI calculators becomes effortless, empowering individuals to make informed decisions about borrowing. Ultimately, grasping this process fosters financial literacy and promotes smarter financial management.

 

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