EMI Calculator — Home, Car & Business Loan

An Equated Monthly Installment (EMI) is the fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month so that over a specified number of years, the loan is fully paid off along with interest.

1. The EMI Calculation Formula

The mathematical formula used by banks and financial institutions to calculate EMI is:

• E is the EMI amount.
• P is the Principal Loan Amount.
• r is the rate of interest calculated on a monthly basis (i.e., Annual Interest Rate / 12 / 100).
• n is the loan tenure in months.

2. Understanding the Amortization Schedule

An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.

3. Prepayments and Foreclosures

Making partial prepayments (lump sum payments) during the early years of a home loan can drastically reduce your total interest outgo. Because the interest component is highest at the start of the loan, any extra payment made directly reduces the principal balance, which in turn reduces the interest charged in all subsequent months.

Note that while the RBI mandates no prepayment penalties for floating-rate home loans for individuals, business loans or fixed-rate loans may attract a foreclosure or prepayment fee (usually 2-4% of the outstanding principal).