EMI Calculator

Equated Monthly Installment or EMI for short is a fixed amount that is payable every monthly to pay off a loan taken from a lender such as a bank. While there are often a number of different charges associated with any loan, typically an EMI consists of 2 key components. These are the principal amount repaid and the interest charged on the loan.

During the repayment of a loan, the EMI amount does not change. So, to calculate the EMI dues on a loan, the sum of the principal amount and the accrued interest is divided by the loan tenure to arrive at the equated monthly instalment amount.

During the initial period of loan repayment, the interest component of the EMI is typically higher. However, as the loan tenure progresses, the interest component of the EMI decreases and the portion of EMI allocated towards principal repayment increases.

An EMI calculator is a free online financial tool that can help you estimate the monthly EMI amount that you need to pay in order to pay off a loan. An EMI calculator can be used to calculate the EMI amount on any type of secured or unsecured of loan, such as a car loan, home loan, education loan or personal loan.

To calculate the EMI amount using the EMI calculator, you need to provide 3 key bits of information - the loan amount, repayment tenure and the loan interest rate. After submitting the details, the EMI calculator displays the EMI amount payable each month to pay off the loan in full within the specified repayment tenure. In order to better understand the inner workings of the EMI calculator, let’s take a closer look at the EMI calculator formula.

Any EMI calculator in India uses the same basic formula to calculate the EMI amount. This is what the EMI calculation formula looks like:

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

Where,

P = The principal amount

R = The interest rate

N = Total number of payments i.e. the loan tenure in month

This is a standardised formula that is used by every online EMI calculator to calculate the monthly instalment of any type of loan that you might take. So, any change in any of these 3 variables is capable of increasing or decreasing the EMI payable for the loan.

Using an online EMI calculator is easy as you need to provide only 3 key variables as input. These are:

● Loan Amount: This is the total loan amount that you are planning to take also known as the loan principal.

● Interest Rate: This is the rate of interest per annum (p.a.) that will be charged by the lender on the loan.

● Loan Tenure: This is time period over which the loan is to be repaid to the lender along with the accrued interest.

After providing the details, the EMI calculator will automatically and instantaneously compute the EMI amount payable monthly to pay off the loan in full. Apart from this, the EMI calculator will also provide the details of the total interest payable on the loan and total amount repaid including principal amount of the loan.

Since the EMI calculator is available for free, you can change any of your inputs and use the calculator multiple times to figure out the loan amount that you can afford.

There are numerous benefits of using an online EMI calculator. Some of them are:

Easy Accessibility: The EMI calculator can be used anytime, anywhere as long as you have internet connectivity. It helps you make your loan calculations at your convenience and at your own pace.

Helps Financial Planning: By using an EMI calculator before applying for a loan, you can estimate the EMI you have to pay ahead of time. This can help you plan your finances so that you are adequately prepared to pay off your loan in a timely manner.

Eliminates Calculation Errors: This calculator eliminates the need to carry out complex multi-year EMI calculations manually. This eliminates the possibility of human error when making EMI computations.

Immediate Results: An EMI calculator provides results such as EMI amount instantaneously. This saves time which can be used more fruitfully for other tasks you might need to undertake.

While the basic formula to calculate loan EMI is the same irrespective of the type of loan, there are currently many different types of EMI calculators that you can choose from. The popular EMI calculator variants that you can access and use online to plan your finances include: ● Personal Loan EMI Calculator: The personal loan EMI calculator helps you calculate the monthly EMI amount for personal loans.

● Car Loan EMI Calculator: Specifically designed for car loans, the car loan EMI calculator helps calculate repayments you need to make every month to pay off your car loan.

● Home Loan EMI Calculator: This EMI calculator variant can be used to estimate the monthly EMI amount for home loans that can have a tenure of up to 30 years.

● Education Loan EMI Calculator: You can use the education loan EMI calculator to calculate the EMI amount that you need to pay every month in order to repay an education loan.

Apart from these, there are other less popular EMI calculators too such as gold loan EMI calculator, loan against property EMI calculator, etc. One should however keep in mind that these EMI calculators all use the same basic formula only some of the inputs such as interest rate, loan tenure and loan amount may be restricted based on the type of loan chosen.

As mentioned earlier, the EMI calculation formula is based on 3 key variable. Here’s how these 3 variables impact the EMI you need to pay:

● Rate of Interest (ROI): Higher interest rate on loan means you have to pay more interest and this will lead to an increase in the EMI payable. Similarly, a lower interest rate will lead to a decrease in the EMI amount that will be payable.

● Loan amount: A higher loan amount or principal means you have to pay a higher EMI to pay off your loan. So you need to choose your loan amount wisely.

● Loan Term: A loan with a longer tenure, typically means that the individual EMI amount will be lower, however you will actually end up paying more interest for the loan. Similarly, if you choose a shorter for the same loan, you will need to pay less interest but higher individual EMIs, provided that the interest rate on the loan remains unchanged.

As you can see, the EMI calculator is an essential financial tool that you must use in order to plan for any type of loan you might be planning to take. So, go ahead and compute your EMI amount before applying for a loan to be adequately prepared. This way you would be able to manage your finances better and minimise the potential burden of servicing an outstanding loan.