Taking a housing loan, a car loan or a personal loan in India is getting extremely simpler by the day.

By: Rahul Oberoi | New Delhi |
Updated: August 26, 2015 2:13 PM

Taking a housing loan, a car loan or a personal loan in India is getting extremely simpler by the day.

Are you are planning to buy a house or a car through a loan, but getting bogged down by the exact equated monthly instalment (EMI) figure? It is not that difficult any more. While each bank provides a simple EMI calculator on its website these days, we give you a simple low down on how to calculate your EMI. You can simply rely on a Microsoft Excel for calculating your EMIs or use a mathematical formula.

USING EXCEL

The Excel spreadsheet is one of the simplest ways for calculating the EMI. In Excel, the function for calculating the EMI is PMT and not EMI. You need three variables. These are rate of interest (rate), number of periods (NPER), and lastly the value of the loan or present value (pv).

The formula which you can use in excel is:

=PMT(rate,nper,pv).

To understand this formula better, let us take an example of Jitin Sharma, 30, a Delhi-based financial analyst who bought a car for Rs 11 lakh for which he made a down payment of Rs 6 lakh. For the rest of the amount of Rs 5 lakh, he opted for a loan from a nationalised bank at the interest rate of 10 per cent per annum for 4 years.

It must be noted that the rate used in the formula should be the monthly rate, which is 10%/12=0.83% or 0.0083.

The number of periods represents the number of EMIs.

=PMT(0.0083, 4*12, 5,00,000)= 12,672

The result will come in negative or red, which indicates the cash outflow of the borrower.

Let’s take another example. Suppose you are paying a quarterly instalment for a loan of Rs 10 lakh at 10 per cent interest rate per annum for 20 years. In such a case, instead of 12, you should divide the rate by four and multiply the number of years by four. The equated quarterly instalment for the given figures will be =PMT(10%/4, 20*4, 10,00,000).

USING MATHEMATICAL FORMULA

It is not always possible to access the Excel spreadsheet everywhere. In such a case, you can use your mathematical mind or an electronic calculator to know how much the EMI comes to. 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 10%, then the rate of interest will be 10/(12 x 100)], and N is the number of monthly instalments. When you use the above formula, you will get the same result that you will get in the Excel spreadsheet.

Mathematical formula always gives the accurate result. Last year when I availed home loan, I calculated its EMI on the basis of Excel spreadsheet, but when I calculated its result ,it was completely different from the result of calculation through mathematical formula. I also tallied the EMI with bank calculation and it was same, as calculated by me with the later formula. Online EMI calculator is also the best source for this purpose. Source:emicalculators

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elisa grace

Jan 16, 2017 at 7:07 am

This is practically unfair for the banks to charge the EMI from the date of issuance of the cheque without transferring the amount to the account of debtor. And Dispute Redressal Forum is absolutely correct in its action by considering the loan recovery doents produced by the complainant with reference to their prayer as such, since, the opposite party has failed to file up-to-date evidence of loan recovery. Source:emicalculators

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Pradeep Khairnar

Jun 28, 2016 at 10:33 am

I am laymen for these financial terms. What if the Loan borrowed on floating rate. Is it considerate reducing rate charge method? Is this work for Floating rate policy also.

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Techmagnate Techmagnate

Apr 2, 2016 at 7:19 am

o,Thanks for the sharing this vital information with us, it really a nice stuff

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Boray Sudhindra

Aug 26, 2015 at 7:44 pm

This info should be put in school text books. so that NxtGen be more careful in taking loans!