The first thing here is that what is the full form of EMI. Well EMI is in fact an acronym that is used for Equated Monthly Installment.

‘E’- Equated

‘M’- Monthly

‘I’- Installment

What is EMI?

Equated Monthly Installment that is EMI here is a fixed payment amount and this amount is in fact made by a borrower to a lender at a specific date each month in the calendar. Well dear the main thing about the equated monthly installment is that this  is a fixed type of payment. These installments are used to pay off not only but also principal each month. This is done so that over a certain number of years, the loan is paid off in full. Well dear the most common type of loans like that of real estate concerned also, in fact the borrowers makes certain fixed payments that is periodic in nature, to the lenders over the course of several years. This is in fact done with a certain goal and the very goal is none other than that of retiring the loan.

Let’s discussed more things about the equated monthly installments. Below are some of the things about the EMI.

• The first thing is that equated monthly installments differ from many other payment plans, where each and every borrower is able to pay higher payments at one’s discretion.
• Another thing is that in the case of equated monthly installments, borrowers are allowed one type of fixed payment each month usually.
• There is a lot of beneficial things regarding equated monthly installments. Also the benefit of an EMI for every borrowers is that they know precisely how much money they will need to pay toward their loan each month. This makes the personal budgeting very simple as well as easier.

These are some of the points about EMI i.e Equated Monthly Installments.

EMI Formulas

Well as in the previous section, we have come to know about the more things about the equated monthly installments. Also I have discussed about the things that EMI actually differ from the other variable payment plans. Here I am going to tell some of the things regarding the formula of Equated Monthly Installments.

The Equated Monthly Installments could be calculated using the flat rate method. Apart from this, also there may be the reducing balance method. Well dear the EMI formulas relates to a lot of things. There is a criteria to calculate the formula. Let me discuss about the very things.

The EMI flat rate formula is calculated by summing the principal loan amount as well as the interest on the principal. Also then the sum is divided by the number of periods in month. Now there is another method that is reducing balance method. This also follows a particular method for calculation.

The EMI reducing balance method is calculated using the formula the given mentioned formula-

(P x I) x ((1 + r)n)/ (t x ((1 + r)n)- 1)

Here

P is equal to the principal amount borrowed,while

I is the annual interest rate and

r is periodic monthly interest rate,

n is the total number of monthly payments and

t is the number of months in a year.

Thus dear these are the Equated Monthly Installments Formulas.

Example

Let me explain the very things with the help of an example here so that you would be able to understand the all complications and the issues that are included here.

Suppose any person borrow 10.000,000 units of a particular currency from the bank at 10.5% annual interest for a period of ten years. Or you can say in other words it’s a period of 120 months. Then in that very situation

EMI = Units of currency 10,000,000*0.00875*(1+0.00875)^120/((1+0.00875)^120-1)

=Units of that very currency 134,935

Thus hat person will have to pay total currency units 134,935 for 10 years i.e 120 months to repay the entire loan amount. Thus dear the total amount payable will be following-

134,935*120=16,192,200 currency units.

This will include currency units 6,192,200 as interest toward the loan.

This is all about the formula implementation in the case of equated monthly installments.

Factors on which EMI depends

There are some of factors on which equated monthly installments(EMI in short) depends. Below are that factors-

Tenure of the loan

Well dear the first one is tenure of loan. This is one of the most important factor on which EMI depends. In other words the most important factor is the time for which anyone have taken the loan. The EMI decreases if there is increase in the tenure of the loan.

Here is some criteria as well. But one should understand the increase in tenure means that one have pay more interest to the financial institute i.e banks. Since he or she will be having an outstanding amount against himself and this will be for a long interval of time, he or she will have to pay some extra for taking more time.

Actually Equated Monthly Installments increases with the shorter tenure. In this situation, one should do the budgeting properly and make sure that the EMI can be paid on the very time. This is all about the tenure factor. Let’s discuss about the another one.

Amount of Loan

Well there are a lot of types in the filed of taking loans. And that is why factors differ in the very way. This include as like that of home loan and so on. Thus dear as like home loan equated monthly installments primarily depends on the factor of loan anyone takes. The thing is that if there is an increase in the loan amount, the EMI to be paid will also increase.

Thus guys and girls these are the things that are involved in the case of the equated monthly installments. Let me here discuss about the another factor i.e fluctuation of interest rate, that is responsible for depending of the EMI that is Equated Monthly Installments.

Fluctuation of Interest Rate

Firstly, interest rate is the floating parameter. It keep changing with inflation as well as changing policies of the government. We have a formula to calculate the EMI manually. One has to pay the EMI according to the rates. And also there follows to calculate the EMI which has been discussed already.