Equated monthly installment
An equated monthly installment is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is fully paid off along with interest.
As with most common types of loans, such as real estate mortgages, the borrower makes fixed periodic payments to the lender over the course of several years with the goal of retiring the loan. EMIs differ from variable payment plans, in which the borrower is able to pay higher payment amounts at his or her discretion. In EMI plans, borrowers are mostly only allowed one fixed payment amount each month.
Formula
The formula for EMI is:or, equivalently,
Where: P is the principal amount borrowed, A is the periodic amortization payment, r is the annual interest rate divided by 100, and n is the total number of payments.
For example, if you borrow $10,000,000 from the bank at 10.5% annual interest for a period of 10 years, then EMI = $10,000,000 × 0.00875 × 120/ = $134,935. i.e., you will have to pay $134,935 for 120 months to repay the entire loan amount. The total amount payable will be $134,935 × 120 = $16,192,200 that includes $6,192,200 as interest toward the loan.