How is the EMI calculated?

The Equated Monthly Instalment (EMI) refers to the fixed payment amount a borrower pays each month towards any type of loan. It consists of both the principal loan amount and interest component. Calculating the EMI helps create a repayment schedule and plan finances accordingly over the loan tenure.

• The EMI calculation factors in the principal loan amount, interest rate, and total repayment months, i.e., loan tenure.
• The formula to calculate EMI is: EMI = Loan Amount x Monthly Interest Rate x (1+Monthly Interest Rate)^Tenure / ((1+Monthly Interest Rate)^Tenure - 1).

For example, for a machinery loan of ₹10 lakhs at 10% annual interest for a 5-year tenure, the monthly interest rate is 10%/12 = 0.83%.
Applying the formula:

EMI = 10,00,000 x 0.0083 x (1+0.0083)^60/ ((1+0.0083)^60 - 1)
= ₹22,798

This EMI of ₹22,798 per month for the 5-year (60-month) loan tenure would repay both interest and principal.

Online EMI calculators easily compute the EMI payable based on changing loan amounts, tenures, and interest rates. This helps borrowers assess their repayment capacity.