How to Calculate Personal Loan EMI: Step-by-Step Guide With Formula

The most important thing for you to do once you have a personal loan is to know the EMI (Equated Monthly Installment). Whether you borrow money for traveling, emergencies, marriage, or consolidation of debts, the EMI will give you an idea of:

• How much you need to pay monthly.

• Whether the loan fits into your budget.

• Effect of interest on the total interest cost of the loan.

• Effect of changes in the tenure or the amount of the loan on EMI.

Below are the steps that show how you can calculate your personal loan EMI. I have also included the formula and a few examples to help you calculate it easily. You will learn how to do it as a pro without being good in mathematics. I will also show you how you can calculate EMI instantly using apps like CreditMitra.

What Is EMI? (Equated Monthly Installment)

EMI is the predetermined amount of money that you have to pay monthly until you repay the whole loan. Every EMI is made up of two elements:

Principal – the amount that you borrowed from the lender.

Interest – the chargeable interest.

The EMI that you have at the beginning of your loan has more interest and less principal. The proportion of the interest part declines while that of the principal rises at the end.

Factors That Affect Your EMI

The monthly EMI would be computed with the help of three primary inputs:

Loan Amount (Principal): The more the loan, the more the EMI.

Interest Rate: Increased interest rates imply increased EMIs.

Loan Tenure (Duration): The longer tenure decreases EMI and in turn the interest you pay is high.

EMI Formula of Calculation (Standard Mathematical Formula)

The formula that banks, NBFCs and loan apps use is the following:

EMI Formula

EMI=PxRx(1+R)N(1+R)N-\text{EMI} = \frac\{P\times R\times (1+R)^N}{(1+R)^N – 1}EMI=(1+R)N−1P×R×(1+R)N​

Where:

P = Loan Amount

R = Monthly Interest Rate

N= the overall number of monthly EMIs.

Manual EMI Calculation:

To figure out the answer we can just use the formula. We do this by following these steps:

Step 1: Take the interest rate and turn it into a monthly rate. This is the thing you need to do when you are working with the annual interest rate and the monthly interest rate. You have to convert the interest rate into a monthly rate so that you can use it to calculate things. The annual interest rate is what you start with. Then you convert it to a monthly rate.

The annual interest rate is 15 %.

Monthly rate
R = 15/12×100 = 0.0125

monthly interest rate is 0.0125

Step 2: Multiply loan amount by monthly interest rate

Let’s take a loan amount of INR 2,00,000.

Now multiply this amount by the monthly interest rate

P × R = 200000 × 0.0125 = 2500

Step 3: Calculate (1+R)n

If you have a loan the time you have to pay it is called the loan tenure. Let us say your loan tenure is 2 years. This is the same as 24 months. Your loan tenure is 2 years so you have 24 months to pay back the loan.

First add 1 to the monthly rate:

1 + R = 1.0125

Now raise it to the power of 24:

(1.0125)24

Step 4. This is where we apply the EMI formula to calculate our payments. The EMI formula is used to find out how much we have to pay every month for the loan. We will use the EMI formula to get the amount. The EMI formula is important for this step.

We need to apply the EMI formula to get the correct result. The EMI formula will help us to calculate the payments for the loan. So we have to apply the EMI formula.

EMI = 2500 x (1.0125^24) / (1.0125^24) – 1

This is what people call the EMI for your loan. It is like a bill that you have to pay for your loan every month.

Your EMI will come to a fixed sum of money that will be paid monthly. This is a complicated calculation – and that is why the majority of the borrowers use an EMI calculator.

Effect of Loan Tenure on EMI (Sample Table).

Conclusion:

The longer tenure = less EMI and greater interest cost.

Less tenure distance = less EMI but greater interest cost.

The reason why is that it is hard to do using manual calculation.

Because you must calculate:

• Exponential values

• Compounding interest

• When comparing monthly and annual interest rates, the former is lower than the latter.

• Total loan cost

This is the reason why the majority of borrowers rely on online EMI calculators to achieve quick and precise results.

CreditMitra EMI Calculator- How It Works

Applications such as CreditMitra would automatically compute EMI directly based on the same mathematical equation but automated.

You just enter: Loan Amount Interest Rate & Tenure

And instantly get:Monthly EMI, Total interest, Total payable amount & Amortization breakdown

Table of EMI Amortization (Simplified).

For a INR 1 lakh loan at 12% for 1 year:

Notice how Interest reduces on a monthly basis and the principal repayment is augmented.

Mistakes Borrowers Commit While Calculating EMI

Belief that EMI=principal/ months.

This doesn’t consider monthly interest.

Failure to factor in processing fee

Your bank may charge 1-4% in advance.

Opting for minimum EMI instead of minimum interest rate.

Minimum EMI implies maximum tenure which implies maximum interest generally.

Failure to compare lenders

Different lenders would offer different interest rates for the same borrower.

Tips on how to decrease your EMI or the total cost of the loan.

Improve your credit score

750+ score equals minimum interest rates.

Opt for a tenure that’s even more extended (if you want less EMI)

Nevertheless, overall interest will be greater.

Partial prepayment

This will decrease the total principal of your loan and your future EMIs.

Comparing several lenders before application.

Elsewhere, you’ll obtain interest that’s 2-4% cheaper.

Do not borrow more than required

Greater loan amount = greater EMI+interest.

How CreditMitra Will Help You In Calculating Your EMI Real Time.

CreditMitra removes any guessing in EMI planning. With the CreditMitra application, you will be able to:

• Compare different EMIs offered by different NBFCs and banks.

• Quick interest rates comparison.

• Real-time adjustment of loan amount and tenure.

• Find out how much interest you’ll pay for your loan and repayment schedule

• Apply for online personal loans.

It will help you choose a loan that fits into your budget and not vice versa.

Conclusion

One of the wisest financial moves you could ever make before borrowing is calculating personal loan EMI. It gives you clarity, helps you to plan expenses and ensures that the loan won’t burden you.

See, no matter whether you opt for EMI calculation manually via the formula or with a smart EMI calculator like CreditMitra:

• EMI amount

• Total interest cost

• Total repayment

• Impact of tenure

It’s always simpler to repay the loan that has been planned correctly, and with the right tools, it’s easy to make the right choice in seconds.