Home Finance  What is EMI, and how is it calculated?

 What is EMI, and how is it calculated?

by Baker Matthias

The full form of EMI is equated with monthly installments or else easy monthly installments. The EMI is the installment that needs to be paid to the bank after availing of loans from the bank. The EMI should be paid on time to avoid getting penalized by the bank. The bank EMI should be paid within the due date provided by the bank. The EMI is calculated on a compounded annual basis. Thus the interest repayment on the loans is high for loans. Thus, before applying for the loans, the borrower should check the repayment value of the loans and accordingly evaluate the monthly installment being chargeable according to the tenure being chosen. And then should take the decision whether the loan repayment is affordable or not. If the loan repayment is affordable, then, in that case, the borrower should proceed with the loans. The manual calculation of the loans EMI is very complex; thus, the EMI calculator is the best tool to evaluate the EMI’s of the loans. There is a very wide formula being associated with the calculation of the compounded annual basis loans.

The interest rates being charged by the banks are 6.50% onwards, which may go as high as 18% per annum. The loans interest rates are gradually declining as the repo rate of RBI is also declining. Also, the home loan interest rates are the lowest compared to personal loans, business loans, or car loans. As the property prices are high, the requirement of the loans is also high. And thus though the interest rates are lower, the loans repayment value is high for the home loans. Due to falling interest rates, it is an attractive proposition for the borrower to avail of loans from the bank or an NBFC. The bank also charges processing fees to the borrower before the start of EMI as the bank requires some cost to be involved for the third-party verification of the documents and for the physical verification of the documents. The loan agreement should be carefully be read by the borrower before proceeding ahead with the home loans. The interest rate, repayment value, and tenure of the loans should be checked carefully before proceeding with the sanction of home loans and before signing the documents.

The formula for EMI is as follows:

E = P x R x [1+r]^n


                [{1+r}^n – 1}

Where E= EMI[Easy monthly installments]

P= principal amount.

R= Rate of interest.

N= tenure of the loans in a number of months.

The numbers need to be inserted in the formulae, and accordingly, the EMI should be calculated.

This process is very complicated and thus also a tedious process to calculate the interest on loans. Also, chances of error are high in this process of calculation.

So thus, the usage of an EMI calculator is more beneficial for the calculation of EMI.

In the EMI calculator, the individual has to enter the details like the tenure of the loans in months, the interest rate being applicable, and the loan amount. The eligibility of the loans can also be found out by entering the monthly salary according to which the home loan EMI & eligibility can be calculated. EMI calculator is present on the entire bank’s official website. The loan applicant can check the repayment value of the loans according to the loan amount and the tenure for which the loans are availed. Also, the calculations done on the EMI calculator are error-free. Thus, the loan applicant should prefer to evaluate the loans with the help of an EMI calculator rather than calculating them manually.

Thus the calculation with the help of the EMI calculator is a simple and easy process to evaluate the loans. The manual method mentioned above is very complex, and thus due to that, the chances of errors happening is very high. So using the computerized system of EMI calculator is a better and easy one. The home loan customer can get instant results for the loan EMI with the help of the EMI calculator.

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