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Calculating EMI considers as a difficult task by home loan and other loan applicants. People frequently feels high knowledge on maths required to calculate EMI efficiently. Realistically, no such knowledge or skills in maths or statistics required to calculate EMI. It is comparatively simple and an easy task. Understanding the most common values are more than sufficient to calculate EMI or Equated Monthly Installment. Here is the formula followed by a simple example and an exercise for those who feel EMI is a difficult task. I even hate maths and do not have any knowledge in that. However, it is easy for me to calculate an EMI of any loan with my simple math knowledge. The formula to calculate EMI is as follows. Don’t worry it is nothing difficult, but very easy. An excel sheet could easily do the calculations for you once you supply all the straightforward values that the formula asking for:
EMI = (LxI) x (1+I)^N / [(1+I)^N]-1
Mystic right.. You may think what the heck is this. It is too large to remember and thinking to stop your read here. Wait a moment. Have a look on the keys down: In this formula, use and excel sheet and you need to just replace the values with following:
L = Loan Amount (you must know that)
I = Interest rate per annuam divided by 12
^ = To the power of..
N = Loan period in month Still doubt on the ‘I’ part? OK. If you have 9% annual interest for your loan, then 9/12 = 0.0075 or 0.75. That’s all. Read this example to get great idea on how it is calculating: Example: You have taken a loan of 500,000 for the period of 15 years and the annual interest rate is 9%.
Calculating your monthly EMI with this formula is:
EMI = (500000X0.0075)x(1+0.0075)^180 / [1+0.0075)^180]-1
That mean:
EMI = 3750 x 3.838 / 2.838 = 5071.33
Really simple right ?
Now do your own calculation exercise:
You have taken a personal loan of 100,000 for the period of 10 years and the annual interest rate is 18%. What would be your monthly EMI?
(Clue: Calculate it using the first example and changing the values accordingly..) Ask if you have questions?
Sherin Dev is the editor and author of investinternals.com and moneywithmoney.net personal finance blogs