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How to Calculate EMI on Your Loan?


How to Calculate EMI on Your Loan And What is EMI?: Equated Monthly Installments, popularly known as EMI, is a trending financial tool these days. If you wonder what an EMI is and how it works, we will try to break it down for you here. 

How to Calculate EMI on Your Loan?

EMI is a facility where you can pay off a debt in a convenient, monthly fashion. In case of loans, an EMI allows you to pay back the money you borrowed in small amounts that are paid over a fixed duration. For this, the bank will charge you an interest on the principal amount. 

So, how to calculate EMI? 

Mathematical Calculation

EMI = [P x R x (1+R)^N]/[(1+R)^ (N-1)]

Not simple enough? There are easy ways of calculating EMI without fussing over what P and N and R stand for. 

However, because it would make sense for you to know what these stand for, let me start with that. To calculate EMI, we use three parameters. These are Principal Amount (P), Rate of Interest (R), and Tenure or the number of months you need to pay back the loan, which becomes N in this formula.

Although the formula may seem complicated and excessive, an interesting fact about it is that it is universal. The same formula can be used to calculate EMI for any type of loan, anywhere in the world. The EMI is inversely proportional to the tenure, and it is directly proportional to the loan amount and the rate of interest. In other words, the smaller the amount you pay each month, the longer it will take you to pay back the total amount you have borrowed.  

How to Calculate EMI on Excel?

How can you calculate EMI using a computer? There is a function available on Microsoft Excel that helps you to calculate EMI. To calculate EMI using Excel, you should know the rate of interest, present value (PV) and number of periods (nper), just like N, P and R. 

In Excel, you can use the following formula to calculate EMI: 

=PMT (rate, nper, pv).

Since Excel comes built-in in most of the computers, it is safe to assume that this feature on your computer too. 

Online EMI Calculator

Now that you know most of the basics, we can skip ahead to the easy part. The easiest way to calculate EMI is an Online EMI Calculator. Online EMI calculators are available to calculate loan EMI. This is where you input these variables into the web and get your EMI figure as the result. Easy enough? Go to an EMI Calculator to calculate EMI on your loan. Be it any type of loan, know how to calculate EMI using EMI Calculator easily in seconds. There are different types of EMI Calculators for different types of loans such as home loan EMI Calculator, car loans, education loans and so on. 

Apart from this, here are a few other things that one ought to know about loan EMI Calculator. 

  • EMI Calculators are accessible online free of cost
  • They give accurate results in a few seconds. 
  • Calculating EMI using an EMI calculator is effortless. There is little work involved in calculating EMI online. All you have to do is go to an online EMI Calculator, enter the required values and get instant results. This saves you from the complicated equation mentioned above. 
  • EMI is not fixed. EMI may change due to a number of reasons. Most prominently, changes in your EMI figure is caused by changes in variables. For example, a change in the interest rate during the tenure of the loan may lead to changes in your EMI payment. 
  • Knowing your EMI might help you analyze your financial situation better and plan ahead, if required.