EMI Calculator
Whether it’s a home loan, car loan, or personal loan, the EMI calculator helps calculate the amount to be paid month by month to repay the entire loan proceeds. The loan EMI calculator enables borrowers to plan their monthly finances more effectively. Let’s understand how to calculate loan EMI by using the EMI calculator online.
What is an EMI Calculator?
The loan EMI calculator is a financial tool that helps calculate the monthly instalment of the payment the borrower will make every month to repay the loan. The mathematical EMI calculator formula is E = P x r x (1 + r )n / ( ( 1 + r )n - 1 ). It requires three parameters to generate output – P (the principal loan amount), r (the rate of interest,) and n (the loan period in months). Undoubtedly, the EMI calculator formula seems complex and complicated; hence the use of an EMI calculator online not just makes the task easy but also generates accurate and error-free results.
Benefits of Using an EMI Calculator
- Accuracy: Eliminates manual calculation errors
- Time-Saving: Instant computation with just a few inputs
- Transparency: Helps understand exact monthly dues and total payable interest
- Better Decision-Making: Assists in selecting optimal loan amount, interest rate, and tenure
- Flexible Planning: Users can experiment by adjusting values to see impact on EMIs and total payment.
EMI Calculators for Different Loan Types
EMI calculators are customized to cater to various loans, like:
- Home Loans: Often longer tenures, lower interest rates
- Car Loans: Mid-duration loans with moderate interest
- Personal Loans: Usually shorter tenures at higher interest rates
- Education Loans: Flexible repayment options suited tothe education duration.
Types of EMI Calculation Methods
- Fixed Rate Method: The interest is calculated on the entire principal over the loan period, resulting in a fixed EMI throughout. This offers predictability but can lead to paying more interest overall.
- Reducing Balance Method: Interest is calculated on the outstanding principal after each EMI payment. Here, the interest portion in EMI reduces over time while the principal portion increases, leading to lower total interest payments.
Example Calculation
Suppose you take a loan of ₹50,000 at an annual interest rate of 12% for 12 months.
- Monthly interest rate r=1212×100=0.01r=12×10012=0.01
- Loan tenure n=12n=12 months
- Principal P=50,000P=50,000
Plugging these into the formula, the EMI would be approx ₹4,435 per month.
Components of EMI
An EMI is a combination of:
- Principal Repayment: Portion of the EMI that goes towards repaying the original loan amount
- Interest Payment: Portion that covers the interest on the outstanding loan balance
In the initial years, EMI mostly pays off the interest. Over time, the principal component rises as the outstanding principal reduces.
Practical Tips for Optimizing EMIs
- Choose a Longer Tenure to Lower EMI: Longer duration reduces monthly payment but increases total interest paid.
- Shorter Tenure Saves Interest: Higher monthly EMI but lower overall interest burden.
- Make Prepayments: Reduces principal and interest, shortening loan tenure and EMI burden.
- Check for Processing Fees and Other Charges: These add to cost beyond EMI.
- Don’t Commit to EMIs Exceeding 40-50% of Your Income: Keeps finances healthy.
FAQs
MyMoneyMantra is one of the leading third-party aggregators. The website collates the information about varied financial products offered by both banks and non-banking financial companies. In addition to an extensive database, MyMoneyMantra also allows easy comparison of products, which empowers the borrower to make an informed decision. Availability of financial tools like the EMI calculator, Eligibility calculator, Loan Prepayment calculator, etc., makes the loan search comfortable and cost-effective.
If you are searching for ‘how to calculate EMI’, MyMoneyMantra's EMI Calculator offers comprehensive support:
- Visit MyMoneyMantra’s official website www.mymoneymantra.com
- Go to the ‘Financial Tools’ tab in the header bar
- Select the ‘EMI Calculator’ option from the drop-down
- Enter the values for ‘Loan Amount, Rate of Interest and Loan Tenure’
The Total EMI Value, Total Interest, and Total Payments will appear on the screen. The break-up of the loan amount will also be depicted in a pie-chart format. Loans that will have a smaller portion of the interest rate segment in the pie chart will be cheaper.
- Enter Loan Amount: The total sum you plan to borrow
- Input Interest Rate: Usually annual interest rate provided by the lender
- Specify Loan Tenure: Duration of loan repayment in months or years
- Calculate: Press the calculate button to reveal EMI
- Analyze: Evaluate EMI against your monthly income and expenses to decide affordability
- Compare Options: Adjust interest rates and loan tenures to find the best fit.
Yes, by using the EMI formula mentioned above, but the manual calculation is time-consuming and error-prone.
- Financial Planning Simplified: An EMI calculator helps you budget wisely by revealing how much you would pay monthly for a loan. This prevents surprises and allows for better financial management.
- Compare Loan Offers: Different lenders may offer varying interest rates and tenures. By using an EMI calculator, you can quickly compare EMIs for multiple loans and choose the one that fits your budget.
- Understand Interest Impact: It shows how interest rates affect your monthly payments and total repayment amount. Understanding this can motivate you to negotiate better rates or choose shorter loan tenures.
- Avoid Over-Borrowing: By knowing your affordable EMI upfront, you avoid taking loans beyond your repayment capacity, thus protecting your credit health.
A loan is a financial agreement. It takes place between the lender and the borrower. While the borrower gains from the lump sum flow of cash, the lender levies interest and certain charges on the loan proceeds which add on to the lender’s income. The borrower can advantageously use the loan amount for the desired purpose and subsequently repay the proceeds in easy monthly instalments. At this point, the monthly EMI calculator comes into play. It enables the borrower to calculate the amount of EMI (equated monthly instalment) to repay the loan.
While the EMI is calculated using three variables - principal amount, rate of interest, and loan tenure, the EMI value constitutes two portions – the principal part and the interest component.
Therefore, the monthly EMI calculator also helps to separate the principal amount and the interest paid thereon. The EMI calculator thus helps calculate the total cost of the loan.
While the EMI of a fixed rate of interest loan will remain the same throughout the loan tenure, the ratio of principal to interest in the EMI value keeps changing throughout repayment. In the first few years when you are repaying the loan, remember, that the interest component will be higher than the principal. The EMI amount is to be paid to the lender every month on a pre-decided date through the mode of repayment opted for at the time of loan application.
The EMI is calculated using a standard formula that considers the loan principal, interest rate, and loan tenure:
EMI=P×r×(1+r)n(1+r)n−1EMI=(1+r)n−1P×r×(1+r)n
Where:
- PP = Principal loan amount
- rr = Monthly interest rate (Annual interest rate divided by 12 and then by 100)
- nn = Loan tenure in months
Reshma Rawat is a passionate writer, with a decade of experience in writing for a variety of domains (finance, technology, lifestyle, e-commerce, real estate, etc.). Currently, she is working as Assistant Manager - Content @MyMoneyMantra, and writes blogs & webpages on financial products (loans, credit cards, insurance, financial policies by government, mutual funds, etc.
Abhijeet Singh has comprehensive experience in business writing, content management, SEO, social media and user analytics. Key areas of expertise include stock markets and personal finance.