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Principal Amt. 100000
Interest Payable 18250
The word EMI stands for Equated Monthly Installment which is a fixed payment amount a borrower has to make to the lender at a specified day of the month on monthly basis. EMIs consist of your principal loan amount & interest amount payable every month.
Though the EMI remains fixed for every month, the payable amount changes as per the rate of interest on the principal amount. At the initial stages of repayment, this interest amount constitutes a major portion. However, as the loan period proceeds & the principal amount reduces, this portion of interest repayment also decreases. This happens untill the entire loan amount has been paid off.
In order to calculate EMI you will have to enter the total loan amount which you want to borrow, time duration of the loan, and the interest rate.
The basic formula to calculate EMI is -
EMI = P x r x (1+r)^n/((1+r)^n -1)
The above variables stands for -
P stands for the amount that you want to borrow.
R stands for the rate of interest applicable on the loan amount on a monthly basis.
N stands for the tenure of the loan repayment.
Let us take an example to understand the EMI calculations in a better way,
Say, you have taken a personal loan of Rs. 4 lakhs for 3 years at an interest rate of 20% p.a.
Firstly, we need to convert the annual rate of interest into a monthly rate & also the loan tenure into months.
To calculate the monthly interest rate, we have to divide the annual interest rate by the number of months in a year, i.e. 20/12 =1.66% per month
The 3-year loan tenure must also be converted into months before putting it into the formula i.e. 36 months
Now we have the three variables with us which we can integrate into the formula as follows -
EMI = [P x R x (1+R)^N]/[(1+R)^ N-1]
EMI = [4,00,000 x1.66/100 x (1+1.66/100) ^ 36 / [(1+1.66/100) ^ 36 -1)
EMI = Rs. 14,865
Total Payment = Principal Amount + Total Rate of Interest
= 14, 865 + 1,35,156
= 5,35, 156