Jumat, 27 Februari 2009

How is EMI calculated?

The Equated Monthly Installment (EMI) of a loan is calculated according to the following formula.

EMI =
(P x i) (1+i)n
(1+i)n - 1

Where,
P is the loan amount
i is the monthly interest rate (i.e. the yearly interest rate divided by 12)
n is the loan tenure in months

For example, if you have a Personal Loan of 5 Lakhs (500,000) for an yearly interest rate of 13% and a tenure of 5 years, then,

P = 500,000
i = (13/100)/12 = 0.010833
n = 5 x 12 = 60

EMI =
(500,000 x 0.010833) (1+0.010833)60
(1+0.010833)60 – 1
= 11376.54

Thus the EMI of the loan is Rs. 11,377

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