Formula to Calculate EMI and Advantages of EMI Calculator

The most crucial thing that you must check before borrowing a loan is the EMI that you will have to pay. With an EMI calculator, you can now check the amount of EMI by adjusting the capital and tenure. Managing your debt can significantly impact your credit score and your eligibility. However, it is critical to be aware of the various debts and monthly obligations in advance. If you are wondering how to learn about various aspects of your EMI, the formula for EMI calculation is the answer. Here is everything you want to know about EMI calculation.
 

What is EMI?

EMI stands for equated monthly instalment, and it is the fixed monthly payment you make to your borrower on a set date. The EMI includes both the interest component and a portion of the loan principal.
During the first few years of your repayment period, you are required to pay more toward interest and less toward principal repayment. However, the situation reverses as the loan progresses.
 

How is EMI calculated?

You can calculate this value using either the mathematical EMI formula or a loan EMI calculator. Let's go over both of these methods one by one.

What is the formula for EMI calculation?

EMI = (P X R/12) X [(1+R/12) ^N] / [(1+R/12) ^N-1]

Here,
P denotes the original loan amount or principal loan.
R stands for interest rate,
and N stands for repayment period in months.
 

How to calculate EMI using a calculator?

A loan EMI calculator is a tool that assists you in determining your monthly loan obligation even before you submit your loan application. To use this software, you will need the following three variables: 

• Loan amount
• Interest rate
• Repayment tenure

The best part about using this tool is that it comes in a personalised form. You can change the variables as many times as you want to arrive at the EMI figure that is right for you.
 

What are the steps involved in calculating an EMI with a loan calculator?

To calculate the EMI using a two-wheeler loan EMI calculator, follow the three steps outlined below.

Step 1

Open the calculator and enter the principal loan amount.

Step 2

Input the rate of interest mentioned on the loan agreement using the slider.

Step 3

Enter the repayment duration of the loan using the slider.

Following completion of the preceding steps, your computer/mobile screen will display the estimated EMI for your loan. Keep in mind that the amount shown on the screen does not include the processing fees and associated charges.
 
Also Read: How to Calculate Two-wheeler Loan EMI?
 

What are the benefits of using a loan EMI calculator?

The benefits of using a personal loan EMI calculator or other loan calculator are many. Some of these are
 

1. Affordability check

   The calculator lets you figure out the monthly obligation even before submitting your application. If the amount displayed on your screen is not within your budget, you can adjust the variables to get an EMI amount that you can comfortably manage.
    

2. Easy-to-use

   A calculator makes EMI calculation much easier than a complex mathematical formula. Instead of getting involved in a complex formula, the calculator only requires you to enter three variables from your loan agreement, and the results will be displayed in the blink of an eye. Furthermore, the calculator produces error-free results.
    

3. Budget management

   The loan EMI calculator simplifies budgeting. Since you are aware of your liabilities, you can easily set aside a portion of your income for EMI payments and plan your expenses on the remaining amount. It is recommended that you automate your loan repayment to avoid EMI skips or delays.  

 

How does repayment tenure impacts EMI?

The repayment period you select affects not only the EMI but also the amount you pay toward interest. Let's start with an example before we go any further.
 
Assume you applied for a Rs 3,00,000 loan. The lender charges an interest rate of 11% based on your credit history and monthly income. In this case, the EMI and total interest payable for various tenures will be as follows.
 

Parameters	Repayment Tenure
	1 Year	2 Years	3 Years	4 Years	5 Years
Loan amount	Rs 3,00,000	Rs 3,00,000	Rs 3,00,000	Rs 3,00,000	Rs 3,00,000
Interest rate	11%	11%	11%	11%	11%
EMI	Rs 26,514	Rs 13,982	Rs 9,822	Rs 7,754	Rs 6,523
Interest payable	Rs 18,174	Rs 35,576	Rs 53,578	Rs 72,176	Rs 91,364
Total payable	Rs 3,18,174	Rs 3,35,576	Rs 3,53,578	Rs 3,72,176	Rs 3,91,364

 
The above table shows the EMI and interest payments for a loan of Rs 3,000,000 over a period of 1 to 5 years. You can see that as you extend your payback period, your EMI decreases while the interest payable increases significantly.
 

To conclude

Knowing the formula to calculate EMI can be extremely beneficial. It will help you choose an affordable loan amount and a tenure that keeps your EMI and interest payable within your budget. If you are unsure about using a manual formula, it is best to use a loan EMI calculator for accurate results.