What is EMI?
EMI, i.e. "Equal Monthly Installment", is a type of loan in which money is lent to you and you have to return the money in equal amounts every month. Every month you have to pay a fixed amount (EMI), usually equal to the principal loan amount and the interest charged on it. The purpose of EMI is to help you repay the loan amount over time, so that you can repay your loan as required.
The amount of EMI and its repayment period (tenure) are decided according to your loan amount, interest rate, and loan structure. If you have taken a loan, the EMI amount and its tenure are clearly mentioned in your loan agreement, so that you can make your payments on time.
How to Calculate EMI?
To calculate EMI you need some pricing information. Here are some main components:
- Loan Amount: The amount you are borrowing.
- Rate of Interest: The rate of interest charged on loan, i.e. how much interest is charged.
- Loan Tenure: The span of time in which you have to repay the loan.
Now, to calculate EMI we use this formula:
where
- E is Equal Monthly Installment (EMI)
- P is Principal Loan Amount
- r r is Monthly interest rate (Annual interest rate divided by 12 multiplied by 100)
- n is Loan period (for how many months the loan is running)
Example of Calculating EMI
Suppose you have taken a loan of ₹ 5,00,000 at 5% annual interest rate and you have to repay this loan for 3 years. Now we will calculate EMI:
After this calculation, you will get your monthly EMI.
How to Use EMI Calculator Tool?
Using the EMI Calculator Tool is very simple, and you just have to follow a few simple steps. Here, we have prepared a step-by-step guide for you to calculate EMI very easily.
Step 1: Enter Loan Amount (₹): The first step is to enter your loan amount. This is money that you have borrowed or want to borrow. You enter your desired loan amount in the field.
Step 2: Enter Interest Rate (%): After this, you will have to enter the annual interest rate of your loan. This happens in percentage. For example, if your annual interest rate is 8% then you will have to enter 8.
Step 3: Loan Tenure Date (Months): Now, you have to decide for how many months you want to take the loan. In this field your loan tenure will be reduced in months. For example, if you want to take a loan for 3 years, then 3 years × 12 months = 36 months.
Step 4: Click on the Calculate Button: Once you have entered all the required details, you will have to click on the "Calculate" button. EMI will be calculated as per the details given by you.
Benefits of using EMI Calculator Tool
Using EMI Calculator Tool is an intelligent and strategic approach to keep track of your financial decisions. Not only does it help you keep track of your future loan repayments, it also has other benefits that can further improve your financial planning.
1. Correct Budgeting: The biggest advantage of EMI Calculator Tool is that you can budget correctly. This way you get clear and accurate information about how much money you will have to withdraw every month. With this you can do better financial planning for the future.
2. Selection of Loan Terms: Using EMI Calculator Tool helps you in selecting the right loan terms. You can try combinations of different loan amounts and tenures to see which plan is most suitable for you.
3. Transparency: The best thing about this tool is that you get transparent information. You can calculate how much principal and interest share you have with each EMI. This lets you know clearly how much loan you are taking and how much interest will be charged.
4. Interest Savings: With EMI Calculator Tool you can test the variations in interest rates and loan tenures. This gives you an idea of how much money you can save by reducing the interest rate even slightly or increasing the loan tenure.
5. Financial Discipline: This tool helps you in maintaining financial discipline. Whenever you take a loan, you have to keep in mind its EMI, and EMI Calculator Tool will help you in this.
6. Quick Comparison: Using the EMI Calculator Tool you can quickly compare the offers of different banks or financial institutions. This helps you find the best and cost-effective option.
7. Prepayment Decisions: If you get the chance, you can repay your loan early. EMI Calculator Tool can tell you how much you will save by making prepayment.