Loan EMI Calculator Online

In this world, as we know money is essential. Every person has some needs and wants in their life. Needs are essential requirements whereas want means wishes which you would like to have in your life.

All people earn money and spend it on essential needs. They are necessary things that you can't avoid in your life. The balance amount can be spent on your wishes, entertainment, investments, and savings. When you have small wishes, they can be bought with the money you have saved. As time goes on, you will have more wishes, and Sometimes your wishes may be big like owning a car, house, etc. and you may need money to fulfill them. So banks give us loans and get them back in small installments.

What is Loan?

A loan is a lump sum of money borrowed from a bank/financier, and you pay the borrowed money back in small installments called EMI (Equated Monthly Installments) that can be calculated using an online EMI Calculator. EMI includes the principal amount and interest incurred.

A bank provides you with a loan with an interest rate. This interest rate varies from bank to bank. The interest rate also depends on the type of loan you require.

Types Of Loan

We can divide loans into two categories:

• Unsecured Loan
• Secured Loan

Unsecured Loan

An unsecured loan is money you borrow for personal and emergency needs like marriage, study loan, etc. Banks provide such loans to individuals without checking their credit scores and repayment history. An unsecured loan will be opted for with a higher rate of interest.

Secured Loan

A secured loan requires you to submit property or asset documents against borrowing money. If the borrower fails to pay the loan within the specific period, then the lender has the right to acquire the asset. This loan includes a home loan, car loan, loan against property, and loan against securities. You can opt for an interest rate lower than that of an unsecured loan.

What is EMI?

An EMI is a monthly installment paid by the borrower to the lender. An EMI for a loan is calculated based on three main parameters. The principal amount, rate of interest, and tenure period.

The principal amount is the Capital/ money borrowed from a lender as a loan. The rate of interest is the interest for the money incurred. The tenure period is the number of years required to repay the loan.

EMI will be the same till the end of the tenure period or till the loan is repaid fully. An EMI is the sum of the principal and rate of interest for the loan, divided by the tenure period. The rate of interest would be higher than the principal value at an earlier stage of EMI since the repaying loan amount will be more at first. As the loan amount gets repaid with each monthly installment the interest rate in the EMI reduces while the principal amount will be higher than the interest. This is because the outstanding loan amount is reduced with each monthly installment. So, the rate of interest is less at the final stage of EMI.

Formula to calculate EMI

The mathematical formula to calculate EMI (Equated monthly installment) EMI= [PR(1+R)^N]/[(1+R)^N-1)] whereas, P = Principal amount or Total amount borrowed as loan R = Rate of interest (in monthly rate): N= Number of years in months

For Example

If you borrow a loan amount of 50,00,000 at the rate of 8% with a tenure period of 5 years, then the EMI will be as follows:
P = 50,00,000
R = 0.08 / 12 (8% equals 0.08 which needs to be divided by 12, which is the number of months in a year) = 0.00666666667
N = 5 x 12 (Multiply 5 by 12 to get a tenure period in months) = 60

EMI = [50000000.00666666667(1+0.00666666667)^60]/ [(1+0.00666666667)^60-1]
EMI = 101381.971 which after rounding off comes to 1,01,382.

To calculate the total EMI, multiply the EMI by the tenure period in months.
Total EMI = Monthly EMI * tenure period (in months) = 1,01,381.971*60 = 6082918.26
Interest = Total EMI - Principal value = 60,82,918 - 50,00,000 = 10,82,918

The above is the basic calculation for finding EMI in all kinds of loans. The EMI value varies based on three factors principal, interest, and tenure period. The tenure period is inversely proportional to the EMI value.

Excel formula to calculate EMI

You can calculate EMI in a spreadsheet / Excel using the PMT formula

=PMT(RATE, NPER, PV)

where,
RATE = rate of interest for the loan incurred
NPER = tenure period to repay the loan
PV = principal value/ loan amount

How to use Loan EMI Calculator?

The Loan EMI calculator is a tool used to calculate your EMI before taking the loan. it requires the user to provide basic detail about the loan amount and the interest at which the bank provides the loan and the tenure period within which you can repay the loan borrowed.

The user can either enter the basic values manually or drag them using the slider. So, once the basic details are entered the loan EMI calculator provides you with the detail of monthly EMI, and total interest for the loan taken. The interest value varies based on the tenure period. Total interest is inversely proportional to the tenure period.

The pie chart provides you with a pictorial representation of the principal value and the interest. The total sum (principal + interest) is the amount to be repaid to the lender as EMI within the specific time.

Each bank provides you with a loan with a specific rate of interest that can be either fixed or floating interest rate.

Fixed Rate EMI Calculator

The interest rate remains the same till the end of the tenure period at a fixed rate of interest.

Floating Rate EMI Calculator

As discussed earlier EMI is based on three key parameters principal, rate of interest, and tenure period. You won't be able to change the rate of interest. The interest rates fluctuate periodically in floating interest rates. It may either move up or down based on the global economy market. However, you can modify the other two parameters to reduce your EMI. You can increase your down payment so that you can reduce your loan amount.

How To Reduce EMI and Save Money?

The tenure period is inversely proportional to the interest and EMI. Another way to reduce your EMI is by reducing the tenure period. This increases the EMI monthly installment. However, since the tenure period is less the total interest for the loan will also be less compared to the higher tenure period.

Amortization Table

The amortization table displays the EMI value calculated for each month with principal and interest values split up. Here you can see the EMI remains constant till the end of the tenure period. Only the principal value and interest vary.

Initially, the interest rate would be higher and only a small part of the principal is taken in the first EMI. As the principal is repaid, the interest keeps reducing in each next installment compared to the before installment.

You can use the above Loan EMI Calculator Amortization table to calculate the EMI paid and its split-ups on principal and interest accumulated for each EMI till the end of the tenure period.

Prepayment of Loan

You are not allowed to prepay the full loan amount at once before the tenure period. When you do so, the bank levitates a penalty. But some banks allow you to prepay a part of the loan monthly or yearly or quarterly.

This prepayment allows you to close the loan soon. You can pay extra EMI than the specified EMI for your loan or pay your savings (deposit returns or from any other source of income) yearly to play a great role in reducing the interest and the tenure period.