How To Calculate EMI
Question
Equal Monthly Installments, or EMI, is the set amount one must pay a bank after getting
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Hi. My name is Grant Hobson. I work as a Finance Analyst and today, I'm going to talk you through some business math calculations and ratios. How to calculate EMI: Equal Monthly Installments. This is basically just getting a loan from a bank with interest that we have to pay over, say, a 3-year period and the different amounts that arise over that time period. But the bank will say we need to pay back a set amount each month and so we're just going to calculate what that set amount is. It is usually the same amount each month, hence, Equal Monthly Installments. So we're going to run through this example now. In terms of the formula for EMI, we can follow it through up here. So you'll see P is the Principle Loan Amount, R is the Annual Interest Rate divided by 12 because we pay monthly installments and N is the number of monthly installments. So however many years you pay over, multiply it by 12 and that will give you that number there. So, for example, we've got a 10,000 pound loan with an annual interest rate of 6% and we're going to pay that back over a 3-year period. So P in the equation, the Principle, is the 10,000 pounds. R is the 6% but we need to divide that by 12 because of the way the formula is set up. And then N is the number of periods so we've got 3 years at 12 months calculates to 36. So, this section here, the 59.834 is the first section of the formula. So then, next we've got 10,000 which is P times by 0.005, your R. Then, these then multiplied by 1 plus your interest rate of nought 5 to the power of 36. So, you just insert these numbers into this first section of the formula. This number down here: the nought.19668, that's the second half of the formula. So here we're just doing 1 plus the interest rate against the power of 36 because that's the number of periods. Last one: so the answer to this to find our Equal Monthly Installments is simply: the top section divided by the second section of the formula which gives us an Equal Monthly Installment of 304 pounds 22. .