Tuesday, December 23, 2008

Formula to calculate loan emi

I hope this will be useful for those applying for loans.

Calculate your EMI using the following formula.

E = P x r x (1 + r)^n / ((1+r)^n -1)

Where P is the loan amount you have applied.

r is the rate of interest per month.

(If your interest rate is per annum or per day, convert to per month.

For example

if rate of interest is 2% per month, r = 2.

if rate of interest is 13% per annum, r = 13/(12*100) = 0.0108333333333 )

n is the tenure in months(duration u want to completely pay back the loan).

E is your monthly emi.

Please note that actually in addition to calculating the emi for your loan with value P equal to the loan amount you have requested, the banks will take the processing charge of x% of P, some fees for stamps, say Rs.y/-. Also please note that if you have signed any insurance form while signing the loan agreement, some extra z% of P will be added to E.i.e. your monthly emi. and Let L is the loan amount you will receive finally.

Therefore L = P - (x% of P + y + if there are some extra charges)

E = E + z% of P.

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