How is EMI Calculated?

Loan companies provide finance to cover planned and unplanned expenses. They have become integral parts of people’s lives. Expensive things like home, car, and foreign trips have come within everyone's reach. However, when seeking a loan, you must be concerned about the monthly installment you must pay each month. Since you must adjust it in your monthly budget for a long period, calculating it accurately helps you plan the finances appropriately. The following sections will discuss how to calculate EMIs and other related information.

What is an EMI?

EMI stands for Equated Monthly Installment. It is the monthly payment you must pay the lender to repay the borrowed loan with interest. The EMI calculation depends on three factors – the loan amount, interest rate, and repayment tenure. 

How to Calculate Loan EMIs?

Here is the mathematical formula to calculate loan EMIs: 

EMI = P × R × (1 + R)^N/((1 + R)^N - 1) 

Here, 
P = Principal, 
R = Rate of interest per month, and 
N = Number of months in the loan tenure.

Suppose you borrow Rs 1 Lakh at a 19% annual interest rate for a tenure of 12 months, here is how to calculate the monthly EMIs:
EMI = 1,00,000 x (0.1/12) x (1+(0.1/12))^12/((1+19)^12-1
EMI = Rs. 9216

Understanding this formula helps you understand how the EMI is calculated on your loan. The monthly instalment amount is directly proportional to the principal amount you borrow and the applicable interest rate. It is inversely proportional to the loan tenure you select. The EMI increases with the loan amount and interest rate and decreases with a longer repayment tenure.

Factors that Affect the Monthly EMIs

The following three factors affect the EMIs:

1. Loan Amount: It is the total amount you borrow from the loan provider. Evaluate your financial requirements and decide upon an adequate loan amount to cover your needs.
2. Interest Rate: It is the rate at which the loan company lends you the loan. It is a percentage of the loan amount you must pay along with the principal amount.
3. Repayment Tenure: It is the time frame you agree to repay the loan with interest. Lending institutions are flexible with their terms. You may choose one with affordable EMIs.

Using an Online EMI Calculator

EMI calculator is an online tool that calculates loan EMIs using the above three factors. Follow these steps to use this efficient tool:

• Visit the lender’s website.
• Open the online EMI calculator.
• Enter the loan amount you wish to borrow.
• Enter the interest rate charged by the loan provider.
• Enter a tentative repayment tenure to estimate the EMIs.
• Click ‘Calculate’.

Your EMI amount, interest amount, and total loan cost will appear on your screen. If you wish to decrease or increase the EMI amount, adjust the tenure to find a tenure with affordable EMIs.
Calculating the EMIs manually can be time-consuming. Moreover, it is prone to errors, making financial management more challenging. Therefore, use an online EMI calculator at Hero FinCorp to calculate your EMIs and plan your finances efficiently.

Benefits of Calculated EMI

Calculating EMIs in advance helps in effective financial planning, ensuring affordability and preventing financial strain. Here are its key benefits:

• Better Budgeting: Helps manage monthly expenses efficiently.
• Avoids Financial Strain: Ensures affordability before loan approval.
• Improved Credit Management: Reduces the risk of defaults.
• Loan Comparison: Aids in choosing the best loan option.
• Prepayment Planning: Assists in strategic loan repayment decisions.

Why You Must Use a Loan Calculator to Know Your EMI Amount

A loan calculator helps you estimate your EMI accurately, ensuring better financial planning. It prevents unexpected costs and helps compare different loan options.

• Accurate EMI Estimation: Helps plan your monthly budget efficiently.
• Time-Saving: Quickly calculates EMI without manual effort.
• Better Loan Comparison: Assists in selecting the most suitable loan.
• Prepayment Insights: Shows impact on tenure and interest.
• Avoids Financial Surprises: Ensures clarity on repayment obligations.

Conclusion

Understanding how to calculate EMIs is vital to strengthen your financials. Set realistic goals, strategise your payments, and pay EMIs on time to avoid complications. Use the EMI Loan Calculator from Hero FinCorp's official website to ensure correct calculations.

Frequently Asked Questions

1. What Factors Influence The EMI Amount?

The EMI amount depends on the loan amount, interest rate, repayment tenure, and type of interest (fixed or floating).

2. Why Does The EMI Decrease With A Longer Repayment Tenure?

A longer tenure spreads the loan amount over more months, reducing each EMI, though the total interest paid increases over time.

3. Can I Adjust The Repayment Tenure To Find A More Affordable EMI?

Yes, extending the tenure lowers EMI, while shortening it increases EMI but reduces the overall interest paid on the loan.

4. What Details Are Required To Calculate EMIs Using An Online Tool?

For accurate EMI calculations, you need the loan amount, interest rate, repayment tenure, and loan type (fixed or floating interest).

Disclaimer- ]The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available during writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Before making any decisions, readers are advised to independently verify any details mentioned here, such as specifications, features, and availability. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.