We’re going to use the standard formula, but don’t let it scare you. We’ll break it down into bite-sized pieces.

The Magic Formula:

EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]

Now, let’s translate this alphabet soup into plain English.

• P stands for Principal Loan Amount. This is the simple one. It’s the total amount of money you’ve borrowed. Let’s say you take a loan of $10,000.

• R stands for Monthly Interest Rate. Banks always quote the interest rate per year (the “annual interest rate”). We need to break that down into a monthly rate.

  • Let’s say your annual interest rate is 6%.

  • To get the monthly rate, you simply divide this by 12 (the number of months in a year).

  • R = 6/100/12 = 0.06/12 = 0.005

  • • N stands for Loan Tenure in Months. This is the total number of EMI payments you’ll make.

      • If you have a loan tenure of 2 years, then N = 2 * 12 = 24 months.Important: Notice we converted 6% (6 percent) into its decimal form (0.06) for the calculation.