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Equated Monthly Installment
What does EMI mean?
A money lender gives a specific amount of money to the borrower with a condition that the amount borrowed is paid back with interest as monthly installments. These installments are given over a predetermined period of time by the borrower and are referred to as EMI.
A person took a personal loan of Rs. 4000000 for 240 months at an interest of 10% p.a. Divide the annual interest rate by the number of months in a year, i.e. 12, so monthly 20/12 = 1.66% per month. Now the 2-year loan tenure should be converted into months before integrating into the above formula i.e. 24 months.
According to the above formula:-
`p * (r / 100 / 12) * ((1 + r / 100 / 12) ^ n) / ((1 + r / 100 / 12) ^ n - 1)`