How is EMI calculated?

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 Education Loan of 15 Lakhs (1500,000) for an yearly interest rate of 11% and a tenure of 5 years, then,

P = 1500,000
i = (11/100)/12 = 0.009167
n = 5 x 12 = 60

EMI = 32,614 rupees
Thus the EMI of the loan is Rs. 32,614 + hidden charges + extras.

This blog is borrowed from http://www.thefinblog.com

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