How do you calculate EMI on a loan?

EMI on a loan is determined by taking the sum of the principal amount and interest that will be accrued and dividing it by the duration of the loan in number of months. EMI is short for equated monthly installments.

The formula for EMI is E= P x r x ((1 +r)^n/((1+r)^n - 1). P is the principal loan amount. R is the interest rate calculated on a monthly basis. N is the loan term or tenure in number of months.

EMI is the amount paid every month, until the entire loan amount is paid off, to the financial institution that issued the original loan. Even though the payment will be the same each month, the amount going towards the interest is larger in the beginning. As payments are made, the amount going towards the principal increases.