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EMI (Equated Monthly Installment): The loans get paid though an installment commonly known as – EMI, As the name suggests EMI is an equal amount paid every month for the entire term of the loan for repayment.
The mathematical formula for calculating EMIs is :
EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where P stands for the loan amount or principal, R is the interest rate per month [if the interest rate per annum is 11%, then the rate of interest will be 11/(12 x 100)], and N is the number of monthly installments.
EMI comprises of two components – Principal & Interest. The break up of these components depends on the tenure of the loan. The higher the loan tenure, the lower is the component of principal paid in each EMI.