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The formula for calculating Equated Monthly Installment (EMI) for a loan is based on the present value of the annuity. It takes into account various parameters such as principal amount, interest rate and loan tenure to calculate the fixed monthly instalment amount. The general formula for calculating EMI is as follows:
EMI = P*r(1+r)^n/[(1+r)^n-1]
Where:
• P is the principal loan amount
• r is the monthly interest rate which is annual interest rate divided by 12. It is generally expressed as a decimal.
• n is the total number of monthly instalments to be paid by the borrower.