Understanding EMI
An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.
How is EMI Calculated?
The mathematical formula for calculating EMIs is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Where:
- P is the principal loan amount
- R is the monthly interest rate
- N is the number of monthly installments
Example Calculation
If you borrow NPR 1,000,000 at an annual interest rate of 10% for 5 years:
- P = 1,000,000
- R = 10 / 12 / 100 = 0.00833
- N = 5 * 12 = 60 months