Equated monthly installment
This article has multiple issues. Please help improve it or discuss these issues on the talk page. (Learn how and when to remove these template messages)
|
An equated monthly installment (EMI) is defined by
It further explains that, with most common types of loans, such as real estate
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.
The formula for EMI (in arrears) is:[1]
or, equivalently,
where: P is the principal amount borrowed, A is the periodic amortization payment, r is the annual interest rate divided by 100 (annual interest rate also divided by 12 in case of monthly installments), and n is the total number of payments (for a 30-year loan with monthly payments n = 30 × 12 = 360).
For example, if you borrow 10,000,000 units of a currency from the bank at 10.5% annual interest for a period of 10 years (i.e., 120 months), then EMI = units of currency 10,000,000 × 0.00875 × (1 + 0.00875)120/((1 + 0.00875)120 – 1) = units of currency 134,935. i.e., you will have to pay total currency units 134,935 for 120 months to repay the entire loan amount. The total amount payable will be 134,935 × 120 = 16,192,200 currency units that includes currency units 6,192,200 as interest toward the loan.
References