Understanding Your Equated Monthly Installment (EMI)
An EMI is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are applied to both interest and principal each month so that over a specified number of years, the loan is paid off in full.
The Formula Behind EMI:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
- P: Principal Loan Amount
- R: Monthly Interest Rate (Annual Rate / 12 / 100)
- N: Number of Monthly Installments
How to Reduce Your EMI:
Higher Down Payment: Paying more upfront reduces the principal amount. Shorter Tenure: While this increases the monthly EMI, it significantly reduces the total interest paid over the life of the loan. Refinancing: Look for lower interest rates if your credit score improves.