Equated Monthly Installments

Equated Monthly Installment (EMI) refers to the monthly payment a borrower makes on his loan. Though it is a combination of interest payment and principal repayment, the total monthly amount is calculated in such a way that it remains constant all through the repayment tenure. In Equated Monthly Installments (EMIs), the principal and the interest thereon is repaid through equal monthly installment over the fixed tenure of the loan. The benefit of an EMI for borrowers is that they know precisely how much money they will need to pay toward their loan each month, making the personal budgeting process easier.
Formula :
E = P?r?(1 + r)n/((1 + r)n – 1)
E is EMI
where P is Principle Loan Amount
r is rate of interest calculated in monthly basis it should be = Rate of Annual interest/12/100
if its 10% annual ,then its 10/12/100=0.00833
n is tenure in number of months
Example :
For 100000 at 10% annual interest for a period of 12 months, it comes to :
100000*0.00833*(1 + 0.00833)12/((1 + 0.00833)12 – 1) = 8792

Accounting & Finance for Banking

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