EMI (Equated Monthly Installment) is the fixed amount you pay every month towards your loan repayment. It includes both the principal amount and the interest charged by the lender.

How Does EMI Work?

When you take a loan, you agree to repay it over a fixed tenure. Instead of paying the entire amount at once, the loan is divided into monthly installments (EMIs). This makes loan repayment easy and affordable.

EMI Formula

The EMI is calculated using the following formula:

EMI = [P × r × (1 + r)^n] / [(1 + r)^n – 1]

Where:

• P = Loan Amount (Principal)
• r = Monthly Interest Rate
• n = Loan Tenure in Months

Example of EMI Calculation

Suppose you take a loan of ₹1,00,000 at an interest rate of 12% per annum for 2 years (24 months).

• Loan Amount (P) = ₹1,00,000
• Monthly Interest Rate (r) = 12% ÷ 12 = 1% = 0.01
• Tenure (n) = 24 months

By applying the formula, your EMI will be approximately ₹4,707.

Benefits of EMI

• Makes repayment affordable
• Helps in better financial planning
• Fixed monthly commitment
• Suitable for all types of loans (Home, Car, Personal, Education)

Conclusion

EMI is one of the most convenient ways to repay loans without financial stress. Before taking a loan, always calculate your EMI using an EMI Calculator to ensure it fits your monthly budget.