How to Calculate EMI?

Planning to take a loan? Hold on! Before you dive in, it is smart to figure out how much you actually need to borrow. 

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Missing EMIs can mess up your financial record, so it is crucial to choose an installment amount that fits your budget. 

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That is where EMI calculation comes to the rescue! With an EMI calculator, you can quickly check your monthly payment and ensure it aligns perfectly with your financial comfort.

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What Is EMI?

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EMI stands for Equated Monthly Instalments, where ’equated’ means equal, signifying that the amount you pay each month remains the same. 

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It is the fixed monthly payment you make to the lender, covering both the loan's principal amount and the interest. When you take a loan, you repay it along with the interest in smaller, manageable amounts instead of a lump sum. 

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These monthly payments, known as EMIs, make it easier for you to repay the loan over time in a structured manner.

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EMI Calculation Formula

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Here is the simple formula to calculate your EMI Calculation formula:

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E = P x R x (1+R)^N / ((1+R)^N – 1)

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Here, 

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• E represents your Equated Monthly Instalment
• P represents the principal loan amount
• R represents the applicable interest rate
• N represents the loan tenure (in months)

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Let us say you are planning to take a ₹10 lakh home loan at an interest rate of 8% for 20 years. 

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Here,

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R is 8% = 8/12/100 = 0.0067

N is 20 years or 240 months

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By entering the numbers into the EMI formula, you will get:

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E = 10,00,000 x 0.0067 x (1 + 0.0067)^240 / (1 + 0.0067)^240-1) = ₹8,389 (approximately)

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Therefore, your EMI amount for a home loan will be around ₹8,389.

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How to Use an EMI Calculator?

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The EMI calculator online are designed to be simple, user-friendly, and quick to use to provide instant results. 

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You can easily calculate the EMI for any fully amortising loan, including home loans, car loans, personal loans and education loans.

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Here is how to use the EMI calculator:

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1. You need to enter the following details: 

• The principal loan amount (in rupees)
• Loan term (either in months or years)
• Interest rate (in percentage)
• EMI payment type (either in arrears or in advance, only applicable for car loans)

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2. You can either use the slider to adjust values or directly type the figures in the relevant input fields for more accuracy. 

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As soon as you change the values, the EMI calculator will recalculate your monthly payment. You can also see a chart breaking down the total payment, showing how much goes toward the principal and how much goes towards interest. 

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Additionally, you will be able to see the payment schedule on a monthly or yearly basis throughout the loan period.

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Floating Rate EMI Calculation

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When calculating floating rate EMIs, it is smart to account for two possible scenarios: inflation (pessimistic) and deflation (optimistic). 

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This approach ensures you are prepared for fluctuations in interest rates, which are set by banks and housing finance companies based on RBI policies.

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While you control the loan amount and tenure, the interest rate is beyond your control. By estimating your EMI under both extremes, you can decide the ideal loan amount, tenure, and affordability. Here is how you can evaluate both situations:

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Inflation

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Suppose the interest rate increases by 1% to 3%. In this situation, your EMI rises significantly, and you need to assess whether you can comfortably handle higher payments throughout the loan tenure.

Suppose you take a home loan of ₹50 lakh at a 9% interest rate for 20 years. Your EMI would be around ₹44,986. 

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Now imagine the interest rate going up to 11%. Your EMI would jump to ₹51,609. That is an increase of ₹6,623 per month! 

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Even a 2% rise can make a noticeable impact, so it is crucial to calculate whether your budget can absorb this change without financial stress.

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Deflation

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Now picture if the interest rate of your loan drops by 1% to 3%. This reduction would lower your EMI, giving you the flexibility to either save more or shorten your loan tenure. 

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For the same ₹50 lakh loan at 9% for 20 years, your EMI is ₹44,986. If the interest rate decreases to 7%, your EMI will drop to ₹38,765, saving you ₹6,221 every month. 

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This extra cash can help you pay off the loan faster or be used for other financial goals. If you are investing in property, a deflationary scenario also allows you to compare its returns with other opportunities.

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The Bottom Line

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Monthly emi calculator helps you plan your finances smartly by showing the exact monthly payment for your loan. 

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Whether you are borrowing for a home, car, or education, knowing your EMI in advance ensures that your repayment fits comfortably within your budget. 

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It is like knowing the price tag of your dream before you buy it. So, you must use an EMI calculator to make informed decisions and stay in control of your financial commitments.

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Frequently Asked Questions

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1. What are the consequences of missing an EMI payment?

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Missing an EMI payment can cost you late fees and hurt your credit score. So stay ahead by using an online EMI calculator to plan your loan smartly and keep your finances on track.

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2. Are EMI calculators reliable?

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Yes, Kist calculators are reliable, as they use a preset formula to compute loan EMIs quickly and accurately. 

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They eliminate the risk of errors often associated with lengthy manual calculations, giving you precise results in seconds.

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3. How much EMI should you aim for?

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There is no strict rule for the perfect EMI—it all comes down to your financial comfort and repayment ability. 

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However, a smart tip is to keep your EMI within 40% of your monthly income to ensure smooth budgeting and avoid financial strain.