How are EMIs calculated for a business two-wheeler loan?

The EMI or Equated Monthly Instalment for a business two-wheeler loan is calculated using the reducing balance method.

In this method, the principal loan amount, interest rate, and loan tenure are used to determine the EMI amount that will evenly distribute interest and principal repayment over the full tenure.

The EMI is derived using the following formula:

EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]

Where,

• P is the Principal Loan Amount
• R is the monthly interest rate, which is the annual interest rate divided by 12 months
• N is the loan tenure in months

For example, if the principal loan amount is ₹1,50,000 at an annual interest rate of 11% for a 2-year (24 months) loan,

the monthly interest rate (R) is 11/12 = 0.91%
Plugging this into the formula,

EMI = [1,50,000 x 0.91 x (1+0.91)^24] / [(1+0.91)^24 - 1]

Which gives an EMI of ₹6,991

If you are planning to take a business two-wheeler loan, it is advised that you use an EMI calculator. Enter various combinations of loan amount, interest rate and tenure to see the impact on EMI. This will help you determine the loan terms that are most suitable for your repayment ability.