EMI (Equated Monthly Installment) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMI’s are usually collected in advance as post-dated cheques.
E = P×r×(1 + r)^{n}/((1 + r)^{n} - 1)
P= principal (amount of loan),
r = rate of interest per installment period, i.e., if interest is 12% p.a. r = 1,
n = no. of installments in the tenure,
^ denotes whole to the power.
Alternatively, the reader can use `Calculate EMI function' in EXCEL spread sheet.
EMI is the finance term. EMI means easy monthly installments or Equal Monthly Installments because this installment is paid on loan or payment of purchased product monthly basis according to contract bank or company. When you take personal or house or any other loan from bank. Bank fixes your monthly installment for repayment of his loan after seeing your salary or professional or business income. Interest is included in it as per regulations of RBI and respective bank's terms. So, in finance sector it is known as EMI.
Example:
Calculate the EMI for the loan amount taken Rs.100000 at 10 % annual interest for a period of 12 months.
Solution:
Formula: E = P×r×(1 + r)
^{n}/((1 + r)
^{n} - 1)
E = 100000 *0.0083* (1+0.0083)/ ((1+0.0083)
^{12}-1)
E = 100000*0.0083*1.0083 / (1.0083)
^{12}-1
E =
8792