How To Calculate Your Monthly EMI


When you apply for a loan, it is important to know how to calculate your monthly EMI’s or equal monthly installments. This calls for payment of fixed installment every month till your loan amount gets fully paid. Knowing how much your EMI is could help you decide whether you can afford to pay your loan or not. Three things are taken into account while calculating monthly EMI’s.

  • Loan Amount
  • Interest Rate
  • Loan Period

With many fast cash loans now made available both to employer and unemployed persons, some borrowers are bound to sink deeper and deeper into debts until such time that they cannot make timely payments anymore. It will be safe for everyone planning to apply for a loan to know how much money they need to pay each month. This will prevent them from taking several loans that could not pay back regularly.

Know How To Calculate Monthly EMI (Equal Monthly Installment)

Some lenders provide an EMI calculator, which their clients can use before they apply for a loan. This calculator is available online if the lender accepts online loan applications.  To find out how much you equal monthly installment you need to pay, enter the amount that you want to borrow, the interest rate, and the length of time that you plan to pay for your loan. Once you have done this, you can easily see the amount that you need to pay each month.

How can using the EMI calculator benefit you? First, you will know the amount that you need to pay for your loan each month. In short, check your reimbursement power. You will know then if you can afford paying for the amount that you planned to borrow. If you cannot, you can reduce the amount that you will apply for or you can extend the payment period. Always remember that bank recovers the interest in the initial years and the principal amount during the end years.

Second, you can compare EMI’s across several lenders to find one that gives you the best deal. Always compare equal monthly installment payments of lending institutions or banks using the interest rate and length of tenure of the loan. Do check the policies of the bank before giving the final word.

Some banks do have hidden charges like Processing Fee, Administrative Charges & Pre-Payment Charges which they don’t disclose initially but you get to know about then when you have already taken the loan from them. So, it is advisable to check thoroughly the details with bank and compare the interest rate of several banks before selecting anyone.

Third, check if you can afford the equal monthly installments. The rule is your EMI must not exceed 40% of your take home pay. If it exceeds what you earn, you will be living a miserable life just repaying it. Or, you will borrow from others just to pay the other lender, making you multiply your loans.

To avoid having equal monthly installments that you cannot afford, try to look around for interest rates that are not exorbitant and which you can afford. Take loans from those that offer low interest rates for long term. Low interest rate with short term could be expensive in the long run. Always ask for clarification if you have questions about the details of the loan. This will prevent you from paying for hidden interest rates, which some lending institutions usually practice.

Fourth, look out for both floating as well a fixed interest rates. Fixed interest rates are normally higher than the floating rates. Floating rates keeps changing according to the inflation rate and market conditions.

Fifth, some banks do offer insurance facility at a small premium which is added to your EMI and the loan amount gets insured for the tenure of the loan. In case something unexpected happens to the person who has taken the loan, the insurance company pays the balance amount to the bank without harassing the family members of the deceased.

Checking about how fees are charged will also help you determine if you are paying equal monthly installments that include fees and other charges. It could be possible that you are paying interests for the amounts that pertain to this, which is not the usual practice.

There are financial institutions that provide borrowers with insurance. However, the premium payments are added to the loan. If your lending agency does this, check if they are also charging interest for the insurance premium.