EMI Calculator

Understanding EMI

In finance, EMI (Equated Monthly Installment) is a term that is commonly heard by people who are taking loans for personal, home, or car purposes. An EMI is a fixed monthly installment that a person pays to a lender until the full amount of the loan is repaid. It is one of the most popular and most used techniques of repaying loans in small installments. Understanding how EMI works, how it is computed, and why it is important can help you make informed financial decisions.

EMI stands for Equated Monthly Installment, which is the fixed sum that the lenders get from the borrowers monthly in line with the loan agreement terms. The installment consists of two components: repayment of the principal amount and interest on the loan. The simple aim of EMI is to repay the loan entirely at the termination of its tenure, but in a manner that is convenient to the borrower by dividing the payment into portions spread over a period.

Factors Affecting EMI

• Principal Amount: The initial amount borrowed from the lender
• Interest Rate: The annual interest rate charged on the loan
• loan-tenure: The total duration for which the loan is taken
• extra-payments: Additional payments that can help reduce the loan tenure and interest

Tips for Loan Management

• Compare interest rates from different lenders before finalizing
• Make extra payments when possible to reduce total interest
• Maintain a good credit score for better interest rates
• Consider loan insurance to protect against unforeseen circumstances

Types of Interest Rates

• Fixed Rate: Interest rate remains constant throughout the loan tenure
• Floating Rate: Interest rate changes based on market conditions
• Hybrid Rate: Combination of fixed and floating rates for different periods