How Do We Calculate EMI? Formula, Procedure, and Calculation

Money is important for accomplishing your luxuries as well as needs. Sometimes, you don’t have the necessary resources to buy your dream home or car. Sometimes, you want to initiate your business, you are helpless due to lack of money. Availing loan facility is the most appropriate solution for this problem. You can avail the loan from financial operators and later, repay back in equated monthly installments (EMI).

The EMI can vary according to the amount of loan and the repayment tenure. If you want to know about the EMI costs, click here to know the accurate calculations. If you want to know about the detailed information, read on to know more.

Here, we have discussed the calculation of EMI by using formulas. Moreover, we have listed the detailed information for a clear understanding. There are two main methods for calculating the EMI cost – Excel Formula and Mathematical Formula. Let us discuss them.

How Do We Calculate EMI? Formula, Procedure, and Calculation

Excel Formula

Indulging in mathematical equations can be confusing, especially if you are not good at mathematics. Simplify your EMI calculations by using MS Excel. There is an inbuilt formula for calculating the EMI costs based on certain parameters. The formula for EMI cost in Excel spreadsheet is:

EMI Cost = PMT(rate, nper, pv)

Here,

Rate = rate of interest, this is the monthly rate in the formula.

Nper = number of periods, this is the number of EMI’s.

Pv = present value, the amount of loan.

So, if the yearly rate is 12%, the number of EMI’s is for 5 years, and the value of the loan is Rs 5,00,000; the EMI cost will be:

EMI Cost = PMT(0.12/12, 5*12, 5,00,000) = Rs 11,122.22

The result will be shown in red color. This means that the amount will be debited from the borrower’s account. Similarly, if the installment is to be paid quarterly, you have to divide the rate by 4. If we take the above case, it will be 0.12/4 and the number of EMIs will be 5*4. The rest information will remain same.

Mathematical Formula

If you don’t have access to a laptop or MS Excel, use a simple calculator to estimate the EMI cost. The formula is very simple:

EMI cost = [P*R*(1+R)^N]/[(1+R)6N – 1]

Here,

P = Amount of Loan

R = Interest Rate per Month. If it is given yearly, divide by 12 to get monthly.

N = Number of installments

Now, if we consider the same values as given in the previous method, we can calculate the EMI costs by the following method:

EMI cost = [500000*0.01*((1+0.01)^60)]/(1+0.01)^60 – 1] = Rs 11,122.22

These are the two methods of calculating EMI cost for the loan. You can use any of the aforementioned methods for calculating the EMI costs. The loan repayment is the sum of the total borrowed sum and the payable interest on the sum. So, if you are planning to apply for a loan, get the EMI estimate for different tenures. After that, you can select the conditions as per your financial convenience.

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