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How is Loan EMI Calculated?
EMI stands for Equated Monthly Installment. It is the fixed monthly payment you make to a lender to pay off your loan. The EMI consists of a portion of the principal amount and the interest charged on the outstanding balance.
Mathematical Formula:
EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]
• P: Principal Loan Amount
• R: Monthly Interest Rate (Annual Rate / 12 / 100)
• N: Number of Monthly Installments (Tenure in Years x 12)
• R: Monthly Interest Rate (Annual Rate / 12 / 100)
• N: Number of Monthly Installments (Tenure in Years x 12)
Tips to Reduce Your Monthly EMI
Make Partial Pre-payments
Whenever you have extra funds, make pre-payments toward your principal balance. This reduces the outstanding principal, which in turn lowers either the remaining EMI or the loan tenure.
Opt for Balance Transfer
If other banks are offering lower interest rates, you can transfer your outstanding loan balance to that bank to save on interest and lower your EMI payments.
Negotiate Interest Rates
Lenders frequently negotiate rates for existing borrowers who have maintained an excellent track record of on-time payments and a high credit score.