Banking: Learn about Bank loan EMI and how does it calculate on monthly basis.

The banks made easy to buy luxurious houses, properties and personal requirements of people by lending the money with the term “EMI”. However the banks grant loans for people based on their cibil score. People must have eligible cibil score to get their loan request approved.

You can use our exclusive EMI loan calculator which made easy to all to know EMI amount, Principal and Interest amounts on monthly and yearly basis.

What is EMI

EMI stands for “Equated Monthly Instalment”. EMI defined as the calculated amount or instalment payable to the lender or bank or financial company for each and every month until the agreed tenure of the loan is completed.

About EMI

EMI is divided into two main components called “Principal” and “Interest”. The Principal component of EMI is used to clear the original basic amount borrowed from lender or bank. The interest component of EMI is used to clear the amount at rate of interest (which is based on agreement between borrower and lender).

The Interest and Principal components are inversely proportioned components. Generally the interest component is higher than principal component in initial terms of payments. The principal component would be higher by the end of loan tenure. That means banks or lender happily paid with the majority of their interest from borrower in initial phases of loan tenure.

How does EMI calculated

EMI is the constant amount to be paid equally for all months and accordingly calculated by mathematically formula with loan parameters. The basic mathematical formula to calculate EMI is:

Explained loan parameters where:

E is EMI
P is Principal (or loan or borrowed) Amount
r is rate if interest (I) on monthly basis
Note: (r is calculated as (I)/12)
Suppose if Interest (I) is 10% per annum, then rate of interest (r) is calculated as r = (10/100)/12 = 0.00833.
n is loan tenure in terms of months

Explained with example:

Rahul Sharma is a software engineer desired to buy a property. He is short of money and requested bank for 15,00,000 Rupees as loan. They have made an agreement to clear the loan with 10% interest per annum within 20 years by EMI.

Now, Rahul Sharma asked the bank for EMI amount to pay on monthly basis. The bank calculated the EMI amount and disbursed the loan amount to Rahul. Let see how did bank calculated Rahul Sharma’s EMI.

Loan parameters:

P = 1500000
I = 10%
r = (10/100)/12 = 0.00833
n = 20 years = 20*12 = 240 months

E = 1500000 * 0.00833 * (1 + 0.00833)240 / ((1 + 0.00833)240 - 1)

Finally, E = 14,475 Rupees

Therefore, Rahul Sharma needs to pay 14,475 Rupees as an EMI monthly for 20 years at rate of 10% per annum for loan amount of 15,00,000 Rupees.

Try Your EMI live now:

Vist our exclusive EMI loan calculator

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