What is Equated Monthly Instalment(EMI) and How is it Calculated?
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With UAE personal loans, you can borrow funds for personal expenses such as home renovations, education, or medical emergencies. Repayments for them are typically made in Equated Monthly Instalments (EMIs), which consist of both principal and interest.
The calculation of Equated Monthly Instalment is important for you to better manage the repayments within your monthly. In this process, the loan amount, interest rate, and repayment tenure are taken into consideration.
How to Calculate Personal Loan EMI — Formula
The calculation of equated monthly instalment can be done online and offline.
The formula is as follows -
EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]
where:
- P= Principal Loan Amount
- N= Repayment Tenure
- R= Interest/Profit Rate
You can use this Equated Monthly Instalment formula to manually estimate your monthly repayments.
For online calculation, simply access an online calculator and enter the loan amount, tenure, and interest rate. You will get the results in an instant.
How Can You Calculate Your Personal Loan EMI (Equated Monthly Instalment)?
An online personal loan calculator is a digital tool to help you estimate your loan repayment details before applying. By inputting variables such as the finance amount, interest rate, and repayment period, the calculator instantly generates the Equated Monthly Instalments.
These calculators are highly useful for borrowers as they provide a clear breakdown of potential financial commitments. You can adjust the inputs by re-entering the values to see how these factors affect your monthly repayments and total cost. This allows you to choose a loan structure that best fits your budget.
Important: These calculators are mainly useful for getting estimates. The actual loan terms may vary based on factors like your credit history, finalised interest rate, and the bank’s policies. For this reason, it’s advisable to consult your respective lender for accurate assessments.
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Can You Reduce Your Equated Monthly Instalment?
Yes, you can attempt to reduce your personal loan equated monthly instalment in multiple ways -
Reducing EMI by Extending Loan Repayment Tenure
Extending the repayment tenure spreads the principal amount and interest over a longer period, reducing the Equated Monthly Instalment. You can lower your monthly financial burden by opting for a longer term and make the loan more affordable on a month-to-month basis.
However, while the EMI decreases with this approach, the overall interest paid across the tenure actually increases. This can lead to a higher total repayment.
Example:
Let’s consider two cases of two people who took personal loans of the same amount and at the same interest rate.
| Factor | A | B |
|---|---|---|
| Loan Amount | AED 100,000 | AED 100,000 |
| Interest Rate | 5% p.a. | 5% p.a. |
| Repayment Period | 2 years | 4 years |
Here’s how the instalments and the total interest will look like for both -
| Factor | A | B |
|---|---|---|
| Monthly Instalment | AED 4,387 | AED 2,302 |
| Interest Amount | AED 5,291 | AED 10,540 |
| Total Amount Paid (Principal Amount + Interest) | AED 105,291 | AED 110,540 |
Takeaways -
- EMIs of A are almost 2x those of B
- However, B’s interest amount is almost 2x that of A
- Overall, B gets lower instalments but pays more
Reducing EMI by Negotiating Loan Interest Rate
Negotiating a lower interest rate with the loan provider can significantly reduce the Equated Monthly Instalment, as this rate majorly decides your monthly repayments. A lower rate decreases the interest charged on the outstanding loan balance, directly lowering the monthly payment.
If you have a strong credit Score, stable income, or existing relationships with the bank, you have better chances of securing reduced rates. Additionally, comparing offers from multiple lenders can help you get competitive interest rates.
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