How this Loan Calculator Works
Whether you are taking out a personal loan, buying a car, or financing a business, knowing your monthly payment is crucial for budgeting. This calculator determines your Equated Monthly Installment (EMI), ensuring that your loan is paid off completely by the end of the term.
The EMI Formula
E = P × r × (1 + r)^n / ((1 + r)^n - 1)
Where:
- E = EMI (Monthly Payment).
- P = Principal Loan Amount.
- r = Monthly Interest Rate (Annual Rate divided by 12).
- n = Loan Tenure in Months (Years multiplied by 12).
Definition of Terms
Principal
The total amount of money borrowed from the lender before interest is added.
Annual Percentage Rate (APR)
The yearly interest rate charged on the loan. A lower rate results in significantly lower total payments over time.
Loan Term
The lifespan of the loan. Shorter terms generally have higher monthly payments but lower total interest costs, while longer terms lower the monthly payment but increase the total interest paid.
Step-by-Step Instructions
- Enter Loan Amount: Input the total cash value you intend to borrow.
- Enter Interest Rate: Input the annual interest rate offered by the bank or lender.
- Enter Loan Term: Specify how many years you will take to repay the debt.
- View Analysis: The calculator will display your monthly payment. The circular chart visualizes the ratio of Principal vs. Total Interest paid over the life of the loan.