An EMI (Equated Monthly Installment) calculator is a tool that calculates the monthly payment amount for a loan based on the loan amount, interest rate, and loan tenure. Here are the steps to use an EMI calculator:
- Enter the loan amount: This is the amount you wish to borrow from the lender.
- Enter the loan tenure: This is the duration of the loan in months.
- Enter the interest rate: This is the annual interest rate charged by the lender.
- Click on the calculate button: The calculator will provide you with the EMI amount, which is the fixed amount you will have to pay each month to repay the loan.
Some EMI calculators may also provide you with a detailed amortization schedule, which shows the breakup of the principal and interest component of each EMI payment.
Here’s an example: Let’s say you want to borrow Rs. 1,00,000 for a period of 5 years at an interest rate of 10% per annum. Using an EMI calculator, you would get the following result:
- Loan amount: Rs. 1,00,000
- Loan tenure: 60 months
- Interest rate: 10% per annum
- EMI: Rs. 2,124 per month
So, you would have to pay Rs. 2,124 every month for the next 5 years to repay the loan.
The step-by-step calculations to find the EMI (Equated Monthly Installment) for a loan:
- Determine the loan amount (P): This is the amount you want to borrow from the bank or lender.
- Determine the interest rate (r): This is the annual interest rate that will be charged on the loan. For example, if the interest rate is 10%, then r = 10/100 = 0.1 (in decimal).
- Determine the loan tenure (n): This is the number of years for which you want to take the loan.
- Convert the loan tenure from years to months (n x 12): This is the total number of monthly payments you will make.
- Calculate the monthly interest rate (i): This is the annual interest rate divided by 12. So, i = r/12.
- Calculate the EMI using the formula:
EMI = P x i x (1 + i)^(n) / ((1 + i)^(n) – 1)
- P = Loan amount
- i = Monthly interest rate
- n = Total number of monthly payments
This formula takes into account the loan amount, interest rate, and loan tenure to calculate the EMI that you will have to pay every month.