EMI stands for Easy Monthly Installment. As the name suggests EMI is the monthly installment. This includes two parts one is the principal amount divided into monthly payments as per the tenure and one more is the interest rate.
The principal amount borrowed will be divided into equal amounts as per the tenure. This small part will be paid every month including the interest rates. This cuts down the principal amount monthly so there won’t be any burden for the loan holder by the end as you are clearing the principal amount along with the interest rate monthly. EMI is calculated on the fixed rate basis, where the interest rate remains same for the entire tenure.
EMI is calculated on the fixed rate basis, where the interest rate remains same for the entire tenure.
EMI = P * r * [(1+r)^n/(1+r)^n -1]
Where, P = Principal amount
r = Rate of Interest
n = loan period