Knowledge Base Loan What is EMI? How is EMI calculated?
Friday, 18 March 2011 18:53

What is EMI? How is EMI calculated?

Written by  Yashish Dahiya
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What is EMI? 

EMI is equated monthly installment. EMI is monthly basis repayment of the loan amount taken. A loan amount, be it home loan, car loan or personal loan is paid back through a series of monthly payments. The monthly payment is in the form of post dated cheques drawn in favour of lender. EMI are paid until the total amount due is paid up. EMI is directly proportional to the loan amount taken and inversely proportional to time period. That is if loan amount increases the EMI amount increases too and if time period increases the EMI amount decreases. It does not mean you have to pay less but rather the monthly amount is decreases since total number of months of repayment have been increased.

How is EMI calculated?

EMI is made up of two variable components- principal amount and interest rate. The EMI is fixed but not the components. The component of interest amount is higher in initial years and decreases over the years. The component of principal amount is lower in initial years and increases over the years.

For this reason, if you consider pre-payment, you should do it in early years as you save on interest rate.

Illustration: Ashwin takes loan of Rs 1 lacs for 1 year with flat interest rate of 20%. The EMI he has to pay is Rs 10,000.



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  • Comment Link sunimal Thursday, 11 August 2011 12:28 posted by sunimal

    How is EMI calculated pratically i would like to know , can you sent with pratical example...
    I shall be waiting for your comment.

  • Comment Link GG Saturday, 17 September 2011 23:34 posted by GG

    EMI =
    (P x i) (1+i)n
    (1+i)n - 1

    if you have a Personal Loan of 5 Lakhs (500,000) for an yearly interest rate of 13% and a tenure of 5 years, then,

    P = 500,000
    i = (13/100)/12 = 0.010833
    n = 5 x 12 = 60

    EMI =
    (500,000 x 0.010833) (1+0.010833)60
    (1+0.010833)60 – 1
    = 11376.54

    Thus the EMI of the loan is Rs. 11,377

  • Comment Link Lokesh Thursday, 13 October 2011 15:40 posted by Lokesh

    The component of principal amount is lower in initial years and increases over the years. How?

  • Comment Link Administrator Friday, 14 October 2011 19:00 posted by Administrator

    Hi Lokesh
    Initial the EMI paid has higher interest component and lower principal component. As years move on, principal amount is increased so that the total loan amount gets reduced till the end of tenure.

  • Comment Link K.Venkadeshen Saturday, 19 November 2011 05:28 posted by K.Venkadeshen

    Any one can tell which bank have a less interst rate for home loan...i need to apply home loan...........?????

  • Comment Link kannie Friday, 23 December 2011 11:04 posted by kannie

    if i pay my emi in two months instead of 12 months will it be reduced?

  • Comment Link veeresh Thursday, 26 January 2012 15:48 posted by veeresh

    what is flat rate of interest

  • Comment Link gurmeet singh Thursday, 15 November 2012 13:06 posted by gurmeet singh

    i want to take a loan of rs 5 laccs but i don't know how emi .calculate n which bank is good. i want to repay it in 20 years pls tell me which bank is good and what emi i have to pay for it

  • Comment Link Administrator Thursday, 15 November 2012 18:11 posted by Administrator

    Hi Gurmeet
    Different banks have different interest rates and EMI is calculated accordingly. One of the best ways is to contact bank in which your salary is credited to. They usually offer good terms. Depending on term, interest rate, loan amount, EMI will be calculated.
    However for personal loans, loan tenure is usually 1-5 years.

  • Comment Link GAURI Saturday, 08 December 2012 13:14 posted by GAURI

    i want to take a loan of rs 5 lacs but i don't know how emi calculate n which bank is good. i want to repay it in 20 years pls tell me which bank is good and what emi i have to pay for it

    i shall be waiting your reply pls.................

  • Comment Link Administrator Tuesday, 11 December 2012 18:05 posted by Administrator

    Hi Gauri
    EMI calculation depends on loan amount, interest rate and tenure.
    When these 3 parameters are defined, EMI can be calculated.
    Different banks offer different terms. You can start with the bank in which you have savings account as they might be able to provide you with good terms. Otherwise you can compare online too.

  • Comment Link manoj Tuesday, 05 March 2013 15:55 posted by manoj

    hi sir,

    can u ley me know the procedure to calculate emi on reducing balance method


  • Comment Link Yashish Dahiya Wednesday, 06 March 2013 11:59 posted by Yashish Dahiya

    Hi Manoj
    The procedure to calculate EMI on reducing balance method is very straightforward. Reducing balance method can be either monthly, quarterly, semi annually and annually. For instance in case of monthly reducing balance, the principal is reduced by the amount paid (EMI) at the end of every month and the interest is calculated on the outstanding principal.

  • Comment Link likitha Friday, 29 March 2013 10:53 posted by likitha

    iam very much confused about the principal what is principal pls xplain me sir

  • Comment Link Yashish Dahiya Wednesday, 29 May 2013 16:33 posted by Yashish Dahiya

    Hi Likitha,

    Put simply, if you request a loan of Rs 5,00,000 at 10% fixed rate for a tenure of 5 year, you will have to repay the bank Rs 5,50,000. In such a case, the principal is 5,00,000 and the interest is Rs 50,000.

  • Comment Link PRIYA GOPAL GHOSH Monday, 10 June 2013 11:38 posted by PRIYA GOPAL GHOSH


  • Comment Link Yashish Dahiya Tuesday, 11 June 2013 14:27 posted by Yashish Dahiya

    Hi Priya,

    You may found these helpful -
    1). http://www.policybazaar.com/finance/know-more/109-car-loan- articles/461-car-loan-emi-calculate.html
    2). http://www.policybazaar.com/finance/know-more/104-credit-card-articles/443-what-is-credit-card-emi.html

  • Comment Link brijendra Thursday, 17 October 2013 16:36 posted by brijendra

    Hi Dahiya sir, i had a loan of 550000 lac .Can a prepaymebt will help me in reducing interest. i consulted the lender firm they assured term of payment will be reduced but not the emi. m bit confused about variation of interest.

  • Comment Link Yashish Dahiya Tuesday, 22 October 2013 16:15 posted by Yashish Dahiya

    Hi Brijendra,
    Yes, it can. If you are getting some other loan at a lower interest rate, you can take the loan (on a lower interest rate) and make a pre-payment of your existing loan with that loan amount.
    However, you must know that for most of the loans, the lender charges a pre-payment penalty in case the borrower wants to pay back the loan amount earlier than usual.

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