How is Loan EMI Calculated?
An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are applied to both interest and principal each month so that over a specified number of years, the loan is fully paid off.
EMI Formula
EMI = [P × R × (1+R)^N] / [(1+R)^N - 1]
- P: Principal Loan Amount
- R: Monthly Interest Rate (Annual Rate / 12 / 100)
- N: Loan Tenure in Months (Years × 12)
Example Calculation
For a Home Loan of ₹10,00,000 at an interest rate of 8.5% p.a. for 20 years (240 months):
- Monthly interest rate R = 8.5 / 12 / 100 = 0.007083
- Tenure N = 20 × 12 = 240 months
- Calculated Monthly EMI = ₹8,678