Understanding EMI
EMI stands for Equated Monthly Installment. It is a fixed payment amount made by a borrower to a lender at a specified date each calendar month.
EMI Calculation Formula
The EMI calculation formula is:
EMI = [P x R x (1+R)^N] / [(1+R)^N-1]
Where:
- P = Principal loan amount
- R = Monthly interest rate (Annual rate / 12 / 100)
- N = Number of monthly installments (Years x 12)
Factors Affecting EMI
- Principal Amount: Higher loan amount means higher EMI
- Interest Rate: Higher rate means higher EMI
- Loan Tenure: Longer tenure means lower EMI but higher total interest
Tips to Reduce EMI Burden
- Make a larger down payment to reduce principal
- Choose longer tenure if monthly cash flow is tight
- Consider making prepayments when possible
- Shop around for better interest rates
- Maintain a good credit score