EMI Calulation
Whether buying a car, buying a new apartment or affording overseas education to children, loans have become an integral part of our life. When we borrow a loan the most accepted methods of repayment is through EMI or EQUATED MONTHLY INSTALLMENT. It is the small amount including both the principal and interest, to be paid towards a loan that we opted for. During the initial stages the interest alone constitutes the major part of the EMI but as we progress in the payment, during the course of time the portion of interest is reduced and the principal amount is added to it.
EMI can also be opted for both fixed and variable rates. It comprises of two major variable components, commonly known as;
- Principal Amount borrowed
- Interest rate for the loan
THE NUMBER GAME
For every loan that you borrow the EMI is calculated based on certain parameters like Interest rates, loan amount and the tenure of repayment for the whole loan amount. The mathematical formula for calculating EMI can be derived as:
DID YOU KNOW?
While you borrow a loan, you are given an option to keep either the tenure or the EMI constant. While one of the above parameter is kept constant, the other parameters will be reduced. i.e., if you opt to keep the tenure as a constant value, then the EMI will be reduced. Or if EMI is paid at a constant rate then the tenure of the loan is reduced.
