EMI Calculator: All You Need to Know

What is EMI?

An Equated Monthly Instalment (EMI) is a fixed payment made by an entity that has borrowed money from a bank or financial institution on a specific date every calendar month. The purpose of making payments via EMIs is to clear off an outstanding loan within a stipulated time period. EMIs are different from variable payment plans, where the borrower can make higher payment amounts as per his or her discretion. In case of EMIs, borrowers generally pay a fixed sum every month.

Now, through the use of an EMI calculator, an individual will be able to identify in advance exactly how much money he or she is going to require on a monthly basis to pay off a loan. The calculator factors in the principal amount, rate of interest and tenure of the loan for the purpose of determining the EMI. Online EMI calculators are easy-to-use, and one is able to find the results within a matter of seconds. It is recommended that those seeking loans must first make use of this online tool as it will help make the entire personal budgeting process much simpler.

How to Calculate EMI?

There are two modes by which an individual can calculate his or her EMIs - manually and automatically (using online EMI calculators). If one wishes to find out the EMIs payable through the former mode, then the formula that would need to be applied is:

EMI = p × r × (1 + r)n/((1 + r)n - 1) where

  • p stands for the loan amount or principal,
  • r is the interest rate per month and
  • n is the number of monthly instalments

Taking into consideration the above-mentioned factors, it can be noted that EMI payments are directly proportional to the loan amount and interest rates and inversely proportional to the loan tenure. The greater the loan or interest rate, the higher will be the EMI payments and vice versa. In case of tenure of loan, while the amount of total interest to be paid rises with the increase in tenure, EMI payments will come down.

The other method of calculating EMIs payable is through the calculators available over the internet. Below are the steps to be followed while using an EMI calculator.

How to Use an EMI Calculator?

Online loan EMI calculators are simple, effective and easy-to-use tools. The type of calculator will vary, depending on the kind of loan - car loan EMI calculator for car loan, personal loan EMI calculator for personal loan and so on. Now, the information that is required to be entered in these calculators are more or less the same - the principal loan amount, loan term and rate of interest. Based on the input, the calculator will show the EMI payable. Some websites will also show a pie chart or bar graph depicting the break-up of the total payment - total principal and total interest payable.

Benefits of Online EMI Calculator

The benefits of using an EMI calculator are as follows:

  • Quick calculation: Calculating EMIs payable with pen and paper can take a while. There is also room for error if one is not careful with the numbers. However, with an online EMI calculator, this activity can be undertaken with the click of the mouse. Additionally, one wouldn’t need to check and recheck the calculations every time as the results will be accurate.

  • Graphic representations: Many online EMI calculators not only provide factual information with regards to the loan, they also portray a graphical representation of the same. The pictorial may depict break up of total payment, which includes the principal loan amount and total interest. The numerical data combined with the graphical representation of the calculation makes it much easier to grasp the nitty gritty of EMIs.

  • Ease of usage: Online calculators are very easy to use. One does not have to be tech savvy to know how to find the results. Entering just a couple of details, like loan amount, interest rate and loan tenure on the EMI calculator website will suffice in getting the desired outcome.

  • Specific to each loan: There are a number of online EMI calculators available over the internet. This allows one to find a calculator similar to the loan that the individual is planning to avail. In case of home loan, there are home loan calculators that will show the EMI payments due on the loan. Similarly, if one wishes to take a car loan, there are car loan EMI calculators that will display the EMIs payable on the loan.

Types of EMI Calculator

There are a number of loan EMI calculators one can find over the internet. Listed below are some of the calculators that individuals can make use of to find the EMIs payable.

  • Home Loan EMI calculator: The home loan EMI calculator is an important tool that all potential home buyers must make use of before taking a loan. This facility gives borrowers a fair understanding of the amount that is to be paid as EMIs towards the housing loan every month. The calculator normally provides a complete break-up of the interest and principal amount.

  • Car Loan EMI calculator: Calculating the EMI for car loan is easy with a car loan EMI calculator. This facility will show the borrower the monthly payments that he or she will have to make for gaining ownership of the car. It must be noted that the processing fee or possible charges may be applicable, which are usually not shown in the EMI calculator.

  • Personal Loan EMI calculator: This is a valuable online automatic tool that helps users determine how much will be their EMI outgo. All that the individual has to do is enter the loan amount, interest rate and the tenure of the loan. The calculator will accordingly show the amount that the individual will have to pay on a monthly basis to repay the loan over the mutually agreed period of time.

Factors Affecting Loan EMI

The EMI of a loan comes down to three factors:

  • Principal loan amount: This refers to the amount that one wishes to borrow from the bank as loan. The principal loan is the primary factor that determines the EMIs. The greater the loan amount, the higher will be the EMI.

  • Interest rate: This is the rate at which banks and other financial institutions offer the loan. Interest rates on loan can be charged on fixed, floating, or hybrid basis.

    The interest percentage is based on a number of factors, such as income, credit history, repayment capacity, current market situation, etc. It is recommended to look for competitive rates as that will help bring down the cost of loan.

  • Tenure of loan: This is the time frame that is agreed upon by the borrower and lender on the repayment of the loan. Generally, longer tenures would mean lower EMIs and vice versa. However, it must be noted that longer tenures can also result in higher interest outgo.

FAQs on EMI Calculator

What is the formula for calculating EMI?

The formula for calculating EMI is:

EMI = p × r × (1 + r)n/((1 + r)n - 1)

where,

  • p stands for the loan amount or principal,
  • r is the interest rate per month and
  • n is the number of monthly instalments

What is loan amortization schedule?

Loan amortization schedule is a complete table of periodic loan payments. It shows the principal amount and the interest amount that make up each payment until the loan is repaid entirely at the end of its term. This schedule helps users understand how the loan is being paid and the outstanding amount that is left to be paid. It contains details like time period of payment, interest, principal payment, total payment (EMI) and the outstanding loan.

How is floating rate different from fixed rate?

Under floating rate loans, the interest rates would vary depending on the prevailing market rates. EMI payments for floating rate loans, therefore, will differ whenever there is a change in the base rates. In case of fixed rate loans, however, the interest rates will remain the same during the tenure of the loan.

What happens if EMIs are not paid on time?

Banks and other financial institutions have their own set procedure for dealing with delays and defaults on EMIs. Certain charges will be levied if one misses multiple EMI payments.

What are the benefits of EMI calculator?

With a loan EMI calculator, individuals can find out the monthly repayment they will have to make in order to repay the loan. Online calculators are easy-to-use tools that will display the results concerning the repayment within seconds.

What are the advantages of finding out loan EMI in advance?

Planning ahead can aid in ensuring stability in finances. By calculating the EMI payable in advance, an individual will be able to determine whether or not he or she can actually spare that much money. Prior to availing a loan, it is recommended that one finds out the payments that will be due through the use of an online loan EMI calculator.

How do part payments effect EMIs?

When a borrower makes part payment, he or she is essentially bringing down the principal amount. This in turn leads to lowering of the interest amount payable, resulting in lower EMI amounts overall.

How to use an online loan EMI calculator?

The steps involved in finding out the monthly amount payable through the use of an online EMI calculator is simple. One will need to input the loan amount, rate of interest, and tenure (in months) in the calculator. Accordingly, the tool will show the EMIs payable (possibly a break of the principal amount and interest amount).

What are the factors that impact loan EMI?

There are a number of factors that have an impact on the EMIs payable. Given that the monthly payment is dependent on the principal amount, tenure, and rate of interest. Any change in the same can lead to a change in the EMI amount.

What are the types of loan EMI calculators available online?

The various loan EMI calculators available online include - home loan EMI calculator, personal loan EMI calculator, car loan EMI calculator and education loan EMI calculator.

Will EMI change during the tenure of the loan?

The EMI, under normal circumstances, does not change throughout the tenure. However, there are certain cases when the monthly payment may change, including:

  • Floating interest rate: If one opts for a floating interest rate, the interest will change on the basis of the market dynamics. When the interest rates come down, so will the EMIs and vice versa.
  • Loan prepayment: If one prepays a certain portion of the loan, then EMIs will change. On prepayment of the loan, the principal amount will reduce, which subsequently lowers the EMIs.
  • Progressive EMIs: Some financial institutions may allow clients to pay progressive EMIs, particularly for long-term loans. Here, one would initially pay a certain amount as EMI, which will move up progressively with a hike in salary.

Will the loan EMI stated by the bank be different from the one calculated by an online EMI calculator?

If the loan amount, interest rate and loan tenure are correctly entered in the online loan EMI calculator, then the results should be the same as communicated by the bank. However, always enquire the final value from the bank before taking a loan as there could be some minor difference.

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