What is an Equated Monthly Installment (EMI)?
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 paid off in full.
How is Loan EMI Calculated?
The mathematical formula used to compute monthly EMI is:
EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]
Where P is the principal loan amount, R is the monthly interest rate (annual rate divided by 12 and divided by 100), and N is the loan duration in total months.