Equated Monthly Installment (EMI) is the fixed monthly payment a borrower makes to repay a loan over an agreed tenure. Understanding EMI mechanics allows borrowers to plan finances accurately and evaluate loan affordability across different lenders and tenures.
The EMI for a loan is computed using the principal amount (P), monthly interest rate (r), and total number of monthly payments (n). The widely used formula is:
EMI = P � r � (1 + r)^n / ((1 + r)^n - 1)
Where r = annual interest rate / 12 / 100, and n = loan tenure in months.
For a loan of ?1,000,000 at 10% per annum for 10 years (120 months):
Applying the formula yields the EMI amount. Use online EMI calculators for quick analytics and amortization schedules.
EMI includes both principal repayment and interest. In initial months, interest forms a larger portion of the EMI; over time, the principal component increases. Amortization schedules detail monthly breakdowns.
When comparing loan offers, evaluate EMI, total interest cost, and flexibility. Use sensitivity analysis�vary rate and tenure assumptions to identify best-fit options.
EMI understanding is essential for disciplined borrowing and long-term financial stability. Always run an amortization schedule before committing to any loan.