Question 1

What is EMI and how is it calculated?

Accepted Answer

EMI (Equated Monthly Installment) is the fixed amount you pay every month to repay a loan. It is calculated using the formula: EMI = P * R * (1+R)^N / ((1+R)^N - 1), where P is principal, R is monthly interest rate, and N is number of months.

Question 2

How is the interest rate applied to EMI?

Accepted Answer

The interest rate is applied monthly on the outstanding loan balance. It is converted to a monthly rate by dividing the annual rate by 12 and then by 100. Higher interest rates result in higher EMI payments.

Question 3

Can I reduce my EMI by increasing tenure?

Accepted Answer

Yes, increasing the loan tenure (in years or months) will reduce the monthly EMI amount. However, it will increase the total interest paid over the life of the loan.

Question 4

What does down payment mean in EMI calculation?

Accepted Answer

A down payment is the initial amount you pay upfront when taking a loan. The EMI is calculated on the remaining amount (loan amount minus down payment).

Question 5

How does part-payment affect my EMI?

Accepted Answer

A part-payment reduces the principal amount, which can reduce your EMI for the remaining tenure or help you complete the loan faster without changing the EMI.

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Principal vs Interest

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