How EMI is Calculated
EMI (Equated Monthly Installment) is the fixed amount you pay each month to repay a loan. The formula is:
EMI = [P × R × (1+R)^N] / [(1+R)^N − 1]
- P = Principal loan amount
- R = Monthly interest rate (annual rate / 12 / 100)
- N = Total number of monthly installments (tenure in months)
Factors That Affect Your EMI
- Loan amount: Higher principal = higher EMI. Try to make a larger down payment to reduce the principal.
- Interest rate: Even a 0.5% difference in interest rate significantly affects total interest paid over the loan tenure.
- Loan tenure: Longer tenure = lower monthly EMI but higher total interest. Shorter tenure = higher EMI but less total interest paid.
Tips to Reduce Your EMI
- Make a larger down payment to reduce the principal
- Compare interest rates across multiple lenders
- Consider a shorter tenure if you can afford higher monthly payments
- Make prepayments when you have surplus funds — this reduces the principal and therefore future interest
- Maintain a good credit score (750+) to qualify for lower interest rates