How to calculate EMI?
Well, without giving any background to my this random thought as to why and when let me directly get to the job. If,
- R = (1 + r/100) where r is rate of interest divided by number of installments in the period of interest.
- P = Principal or Loan Amount.
- n = Total number of installments one has to make.
- EMI = Equated monthly installment.
Then for a simple case of three installments,
((PR - EMI)R - EMI)R - EMI = 0
Simplyfying,
PR3 = EMI * (1 + R + R2)
Without any loss of generality,
PRn = EMI * (1 + R + R2 +... + Rn-1).
Thus,
EMI = PRn(R-1)/(Rn-1)
or,
EMI = P*r/100*(1 + r/100)n/((1 + r/100)n - 1)
Thus, if loan amount is 10,00,000 for 5 years @ 6% (half yearly), installments being paid every month then,
P = 10,00,000
r = 6/6 = 1. (Six installments being paid in half year.)
n = 12*5 = 60 installments.
So, EMI = 10,00,000 * 0.01 * 1.0160/(1.0160 - 1) = Rs 22,244.
posted by Subhajit Kundu at
1:21 AM
1 Comments:
Already got a hit for a search query "how to calculate emi". Noticed that for this query my blog is the 15th result. So if the user is using google with default options then he gets to see my link in second page of results. (10 results a page.) If he customizes google to 20,50 or 100 results a page, my link is on the first page. And he reads what I have to say. His requirements can be very specific and my comments can be very generic in nature. Like my blog on how to calculate EMI (EYI: Equated Yearly installments) caters to them where user satrts paying immediatley from next month (Year). But suppose if the user to chooses to pay the installments after some initial time then this doesn't work. Like education loan. People will pay the EMIs when they finish the course and are doing some job. They don't pay right from the next month. Though a slight modification to loan amount fixes the problem. But it won't work in its present form.
May be I need to behave more responsibly now! :-)
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