Know Your EMI Calculations and your Overall Payment

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Presently people are being provided plethora of choices to take Loans. Home Loans, Car Loans, Personal

EMI Calculation and Overall Payment

loans, Education Loans and so on. Loan makes life easier but along with it comes the EMI (Equated Monthly Instalments).

People pay EMI monthly for years together usually ranging from 1-20 years. It makes it very convenient to pay small amounts from time to time rather than a lump sum amount at once.

But did you ever think how much your Overall EMI total up to in years? Or how is this EMI calculated? You can do it yourself so that you have an idea how much you need to shell out and which scheme will benefit you more. The longer duration you take the higher you end up paying. The EMI might be low but the overall payment throughout the years increases.

Gather information about various schemes in which you are interested. You need to know 3 things

  1. The amount of loan you require
  2. The Annual Interest rate of a Bank on a loan
  3. Number of years (more specifically months) to repay the loan

Formula to calculate:

E = P×R×(1 + R)n/((1 + R)n – 1)

E = EMI

P= Loan Amount

R= Rate of Interest (divide it by 12 to make it monthly interest)

Eg:

  1. Leela takes a loan of Rs.1 lac for 3 years (i.e. 36 months)  at an interest rate of 12 %

Calculate his EMI and Overall amount paid at the end of 3 years

Calculation:  (100,000*12%)*(1+12%/12)36/((1+12%/12)36-1)

= 3321.43

So your EMI is Rs.3321.43

Now that you are paying it every month for 3 years, how much it totals up to:

= 3321.43 *36 = Rs.119,572/-

So overall you pay Rs. 119,572 in total (excluding the bank charges/processing fee)

Let us calculate a similar sum with longer duration

  1. Krishnan takes a loan of Rs.1 lac for 5 years (i.e. 60 months)  at an interest rate of 12 %

Calculate his EMI and Overall amount paid at the end of 5 years

Calculation:  (100,000*12%)*(1+12%/12)60/((1+12%/12)60-1)

= 2224.44

So your EMI is Rs.2224.44/-

Now that you are paying it every month for 3 years, how much it totals up to:

= 2224.44 *60 = Rs.133,467/-

So overall you pay Rs. 133,467 in total (excluding the bank charges/processing fee)

So as you see in both the examples, the amount was same, the rate was same but as the Krishnan took loan for more years his overall payment is higher though the monthly EMI was low.

I hope this article helped you.

For all those Non-finance students who want to skip the torturous calculation please download the below link and simply feed in your loan details and you will get the results calculated.

https://docs.google.com/spreadsheet/pub?key=0AlC7HnnNgD3KdGk2TjFZTnUwUlktUVNIQVBMQjZ2https://docs.google.com/spreadsheet/pub?key=0AlC7HnnNgD3KdGk2TjFZTnUwUlktUVNIQVBMQjZ2Tnc&output=xls

Great Brains, Good Heart 🙂

D.V.P

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