A Comprehensive Guide to Understanding EMIs
Equated Monthly Installments, or EMIs, are fixed payments that a borrower makes to a lender at a specified date each calendar month. EMIs are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.
How is EMI Calculated?
The mathematical formula for calculating EMI is:
EMI = [P x R x (1+R)^N] / [(1+R)^N-1]
Where:
- P stands for the Principal loan amount.
- R is the rate of interest calculated on a monthly basis. (i.e., R = Annual Rate of Interest / 12 / 100).
- N is the loan tenure in months.
Our EMI calculator handles this complex formula for you, so you can focus on planning your finances.
The Impact of Prepayments
Making partial payments towards your loan principal, known as prepayments, can significantly reduce your overall interest burden and shorten your loan tenure. Even small, regular prepayments can save you lakhs over the life of the loan.
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