How we calculate EMI?
EMI stands for Equated Monthly Installment, and it is the amount that a borrower needs to pay every month to repay a loan.
EMI is calculated based on the loan amount, interest rate, and tenure of the loan. The formula used to calculate EMI is as follows:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Where, P = Principal loan amount
R = Rate of interest per month (the annual interest rate divided by 12)
N= Loan tenure in months
Let's assume that a borrower has taken a loan of Rs. 1,00,000 for a tenure of 24 months at an interest rate of 10% per annum. The monthly interest rate will be 10%/12 = 0.0083. Using the above formula, the EMI for this loan will be calculated as follows:
EMI = [1,00,000 x 0.0083 x (1+0.0083)^24]/[(1+0.0083)^24-1] = Rs. 4,719.55
Therefore, the borrower will need to pay an EMI of Rs. 4,719.55 every month for 24 months to repay the loan. It is important to note that the EMI amount includes both the principal and the interest components of the loan, and the proportion of each component may vary over the loan tenure.
(Naveen Sinha)