The fixed amount of payment that borrower needs to pay to the lender on monthly basis is called EMI (Equated Monthly Installment). The amount of EMI consists of both principal and interest values which is payable every month. The EMI remains constant/ fixed for every month, the ratio and amount of interest and principal changes with time.

In the initial phase of repayment of loan, the interest component constitutes the major portion of loan amount but subsequently when the loan progresses the outstanding principal reduces and hence portion of interest decreases.

How EMI calculator works?

EMI calculator is a very simple tool which requires you to enter the loan amount, duration of loan, interest rate chargeable and processing fees, rest everything is done by the calculator. The formula for EMI is:

E = P x r x (1+r) ^n/ ((1+r) ^n – 1)
Where,

• E is EMI, the monthly installment borrower needs to pay
• P is the principal amount of loan borrowed
• r is the rate of interest applicable on loan. This rate is given on monthly basis instead of annual. Its formula is: r = (annual interest/12) x 100
• n is the duration of loan (in months). In case you calculate EMI for 4 years, n will be 48 instead of 4

The above written formula is vanilla version of it however many calculators can modify it according to needs, like processing fees amount can be included in the calculation of EMI. The processing fee is generally stated in percentage of the loan amount and it is mostly from 1% to 3%, depends upon the discretion of bank. Calculator shows three types of output information, first one is EMI, second is breakup of payments due and last one is amortization table. All three of these are discussed below separately.

The EMI

As discussed earlier, EMI is the amount; the borrower needs to pay to the lender every month. It includes both principal and interest portions. It is most important thing the EMI calculator is used for. Along with EMI calculator, you must also check your loan eligibility with loan our free-of-cost loan eligibility calculator.

The breakup

It is the total amount the borrower needs to repay to the lender in the entire lifetime of loan. It also tells the amount that is to be paid back in terms of principal, the amount that constitutes the interest portion and the processing fees that needs to be paid to the lender.

Amortization table

The amortization table is the snapshot of the loan as it progresses with time. It tells the borrowers how the loan has to be repaid at the end of the year, as the loan progresses with time. It also tells how the interest portion of the loan needs to be repaid with progression of time. The amortization table describes the loan amount constituents including interest and principal. It helps one to know how much of the initial EMIs will constitute interest portion and principal portion.