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Understanding EMI (Equated Monthly Installment)

EMI, or Equated Monthly Installment, is a fixed amount of money that you pay each month towards the repayment of a loan. It includes both the principal amount and the interest on the loan.

EMI Calculation Formula

The formula to calculate EMI is:

EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]

Where:

• EMI is the Equated Monthly Installment.
• P is the principal loan amount (the initial loan amount you borrowed).
• R is the monthly interest rate (annual interest rate divided by 12 months).
• N is the loan tenure in months (the number of months over which you will repay the loan).

Example

Let's say you borrowed INR 50,000 as a personal loan with an annual interest rate of 9% for a tenure of 24 months (2 years).

Using the EMI formula:

EMI = [50,000 x (0.09/12) x (1+0.09/12)^24] / [(1+0.09/12)^24 - 1]

EMI ≈ INR 2,261.82 per month

So, your Equated Monthly Installment (EMI) would be approximately INR 2,261.82.

EMI makes it easier to manage your loan repayments as it ensures a consistent monthly payment, which includes both the principal and interest components.