FULL FORM OF EMI

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WHAT IS EMI

       EMI stand for Equated Monthly Installment. EMI is a fixed amount that a borrower pays to a lender at a particular date of every month for a fixed period of time. It includes principle amount and interest that a borrower has to pay to lender over a specific number of years to repay the loan amount in full.

CALCULATION OF EMI

     The calculation of EMI depends on three factors ---
  1.  Interest Rate
  2.  Loan Amount
  3.  Tenure of the Loan

 CALCULATION OF EMI WITH FLAT INTEREST RATE

     In flat interest rate the the interest is calculated on the whole principle loan . It can be understand with the following example ---
     Suppose a individual has taken a loan of Rs- 500000/ at a interest rate of 10% for a period of  3 years then the EMI is calculated as -
     Principal Amount = 500000/
     Flat rate of interest=  10%
     Tenure of loan = 3  years
  Total Interest =  Principal Amount x rate of interest x tenure of loan
                                ------------------------------------------------------------------------------
                                                100
                           =  500000 x 10 x3
                               ----------------------
                                   100
                           = 150000
      Total interest divide by 36 + principal Amount divided by 36 will be the EMI in this example EMI will be    500000/36 + 150000/36 = 13888.88 +4166.66=18055.55 so the final EMI will be 18056.00

CALCULATION OF EMI ON THE BASIS OF DIMINISHING BALANCE INTEREST RATE

     In case of diminishing balance interest rate, the interest amount varies each month as for the first month interest is calculated on the whole principle loan and for subsequent months interest is calculated on outstanding loan amount.

   The formula or method to calculate reducing interest amount is ---
   Principal Amount= 500000/
   Diminishing rate of interest= 10%
   Tenure of loan = 3 year

 So Interest for the first month is  =  500000 x (1/12)  x (12/100) = 4166.66/
   Interest for the second month =  outstanding loan amount x ( 1/12 )x ( 12/100)
     

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