What is EMI?
EMI stands for Equated Monthly Installment and represents the amount payable every month to the bank or any financial institution until your loan is fully paid off. It is usually calculated by adding the Principal amount (Loan amount borrowed) and the interest component and dividing by the borrowing tenure i.e. number of months.
The composition of an EMI can change from month to month. While the Principal repayment component of the EMI increases, the interest component decreases with the vintage of the loan.
The formula to calculate EMI:
E = P x r x ( 1 + r )n / ( ( 1 + r )n - 1 ) where E is EMI, P is Principal Loan Amount, r is monthly rate of interest (For eg. If rate of interest is 14% per annum, then r = 14/12/100=0.011667), n is loan duration in number of months.