The Mathematical EMI Formula
Equated Monthly Installment (EMI) is calculated using the standard reducing-balance annuity formula: $$\text{EMI} = \frac{P \times r \times (1 + r)^n}{(1 + r)^n - 1}$$ Where:
- $P$ = Principal Loan Amount
- $r$ = Monthly interest rate (Annual rate divided by 1200)
- $n$ = Loan tenure in total months
The Deceptive "Flat Rate" Trap
Unethical lenders often quote a "flat 6% rate". In a flat interest loan, you continue paying interest on the full initial principal for the entire tenure even after repaying 90% of the loan! A 6% flat rate is actually equivalent to an effective 11.5% reducing balance rate.
Simulate prepayments and view month-by-month principal reduction on the EMI Calculator on Tools24Now.