# Calculate EMI for Loan

Use our Loan EMI Calculator to estimate your Loan EMI and also analyse interest and outstanding principal repayment.

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## EMI result

• Loan Amount
• Rate Of Interest
• Tenure
• EMI:
• Interest Paid:
• Total Amount:

### Understanding EMI

Equated Monthly Installment(EMI) is a fixed amount to be paid by the borrower to the lending authority (may be a bank or any other financial institution) on a specified date on monthly basis until the entire loan amount is repaid. EMI (payable every month) includes a part of principle loan amount and interest amount.

In other words, the sum of the principle loan amount and interest is divided by the duration (in months) in which the loan is to be paid off. Thus the total EMI remains fixed for each month; however, it must be noted that the amount paid towards principle and interest changes in each installment. The interest element in EMI is higher during initial period and gradually decreases towards the end. The exact percentage of principle in EMI depends on the interest rate.

### Everything you need to know about EMI Calculator

While deciding upon whether to take loan (personal, car home loan etc.), firstly, one must calculate the actual cost to be incurred by the end of installment period. The actual cost is evaluated in terms of monthly installments (EMI) to be paid by the borrower for payment of loan.

Basic inputs required while estimating EMI include amount to be borrowed (Principal), interest to be paid on amount (r), tenure of the loan and the processing fee for the said loan. After all this information is gathered, EMI must be evaluated. If borrower realizes, the EMI value is higher and needs to be reduced this can be done by either adjusting the tenure or principal amount that is to be borrowed or both.

After this exercise is completed, and borrower gets the appropriate EMI for them, they must approach the banks/ financial institutions and choose the best suitable. To ensure the possibility of any mistake is null one must recheck the same formula for each bank. The process thus is time taking and this is why EMI calculator takes an edge over the traditional hand calculations as it provides the results within a split seconds and also reduces the possibility of calculation error (common manually).

### How EMI Calculator Works

'Banking on Tips' designed an EMI calculator to ease the evaluation of monthly EMI. This tool requires the user to enter the amount they want to borrow, the duration of the loan, the interest rates and the processing fee and calculator will do the rest. The basic formula that works behind an EMI calculator is:

Where:

• E: the amount that you will have to pay every month i.e. the EMI.
• P: the amount that you want to borrow i.e. principle loan amount.
• r: the rate of interest that is applicable but calculated on a monthly basis instead of the annual rate of interest. It is obtained by using the formula r = annual interest/12/100; e.g. if rate of interest is 9.5% per annum then r = 9.5/12/100 = 0.007917.
• n: the duration of the loan in terms of months. So if you select a term of 5 years, n will be 60 (i.e. 5*12).

EMI Calculator eases the calculation due to automation and thus produces the results within fraction of a second.

Note: This is the generic formula that is used by the calculator but sometimes some other factors like the processing fee for the loan are also included into the calculation of the monthly instalment. The processing fee is generally a certain percentage of the amount borrowed and usually ranges from 1% to 3% (varies from one financial institution/ bank to other).

### Using EMI Calculator

Using ‘Banking on Tips’ EMI calculator is quite easy and also a quick process. This calculator can be used to evaluate EMI for home loan, car loan, education loan, personal loan or any other fully amortizing loan.

Particulars to be inserted in tool:
• Principal loan amount (in Rupees)
• Loan tenure (in months)
• Rate of interest (monthly in terms of percentage)
Results:
• Breakup of total payment (in terms of percentage) i.e. total principal and total payable interest in form of visual pie chart which is easy to understand.
• Total payable EMI (in Rupees) to be paid every month.

### Key points to Ponder

#### Types of EMI Calculation

There are three types of interest rates:

• Fixed interest rate
• Floating interest rate
• Combination of fixed and floating interest rate
EMI Calculation with Fixed Interest Rate:

Where interest rates are fixed, the EMI shall remain constant for each month thus calculation being simple and straightforward.

EMI Calculation with Floating Interest Rate:

Floating interest rate refers to the variable rate EMI, i.e. rate of interest varies every month according to market scenario. To understanding Floating Interest Rate one must consider the generally prevalent market scenarios:

• Inflationary (Pessimistic) Scenario: If the rate of interest is hiked by say 1%-4% from the present rate. Then EMI will be calculated considering this rate. In this situation either EMI will increase or tenure will increase. Even slight increase in rate of interest might increase the EMI or tenure significantly.
• Deflationary (Optimistic) Scenario: Assuming the rate of interest is declined by 1%-4% from present rate. As a result the EMI will reduce or the tenure will be shortened significantly, thus relieving the borrower from burden at the earliest.

These calculations might be of great help for planning any future possibilities. The borrower must however consider both the possibilities and be prepared for the both.

#### Pre- EMI or Full EMI

Pre-EMI: EMI during loan disbursal i.e. payment are made against the interest component of the loan(which being disbursed in parts).

e.g.: If a borrower takes education loan of say 4 lakhs and it is disbursed in stages of 1 lac each. If the borrower opts for paying interest starting from disbursement of first installment it refers to as Pre- EMI. To be noted here is the principal amount of the loan is not reduced (remains constant) if one opts for Pre-EMIs.

Pros:
• Payable EMIs will be lesser than the loan amount disbursed.
• It is an economical mode as it comprises only interest payments.
Cons:
• Tenure is more as principle payment begins only after entire loan disbursal.

Full EMI: EMI after borrower gets the loan i.e. interest and principal both are repaid after the disbursal of entire loan amount.

Pros:
• Free from any payments till the entire loan is disbursed.
• Loan Tenure is shorter.
• Higher income tax rebates.
• The total outstanding loan amount starts reducing from the first installment since payments are made to go towards reducing the principal and thus the due interest.
Cons:
• EMI remains constant during the entire loan period.
• EMI is higher as compared to Pre-EMI, i.e. lower personal disposable income.
What to opt for: Pre-EMI or Full EMI?

If borrower is expecting larger income inflows are expecting higher returns from the investment funded through loan, then, preferably Pre-EMI must be opted. If borrower is unsure then Full EMI must be opted to avoid any risks.

#### Tenure of Loan

The borrower must also keep in mind the duration in which the loan is to be completely paid off. To reduce the value of monthly installment tenure can be increased these mathematical calculation must be carried out with due care considering the sources of monetary inflows and availability. If tenure is too less the EMI shall be higher thus allowing lesser flexibility with the personal disposal income. If loan period is more then it might be a hindrance in planning any future possibilities.

#### Processing Fees

One of the most important factors while selecting the financial institution for loan is the processing fees being charged by different organizations. Processing Fees varies from organization to organization. The borrower must therefore make a wise choice.