How Does an EMI Calculator Work?
An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are used to pay off both interest and principal each month so that over a specified number of years, the loan is fully paid off.
The EMI Formula
The mathematical formula used to calculate the EMI is as follows:
$E = \frac{P \times r \times (1 + r)^n}{(1 + r)^n - 1}$
- E is EMI
- P is Principal Loan Amount
- r is rate of interest calculated on a monthly basis. (i.e., $r = \frac{\text{Annual rate}}{12/100}$)
- n is loan term / tenure / duration in number of months