EQUATED MONTHLY INSTALMENT
Equated Monthly Instalment (EMI):
EMI is the monthly amount which we pay towards the repayment of the loan. EMI are used to
pay off both interest on the loan and principal amount.
The EMI depends on the following factors:
1. Principal borrowed
2. Rate of Interest
3. Tenure of the loan
Calculation of EMI:
There are two methods of calculating EMI:
1. Flat rate method
2. Reducing balance method
Flat Rate method:
In flat rate method, the amount of interest paid is fixed. The amount of interest is calculated on
the principal loan amount borrowed for its tenure at a constant rate of interest.
Principal + Interest
EMI =
Number of payments
P + Pni
EMI =
n
Where P =principal borrowed
i =interest rate per rupee per month
n = number of payments
Reducing Balance method:
In this method, interest does not remain constant for every EMI. As we pay off our loan,
the outstanding principal amount decreases with every EMI and the interest for every
subsequent EMI is calculated on the outstanding principal amount.
𝑃 × 𝑖 × (1 + 𝑖)𝑛
𝐸𝑀𝐼 =
(1 + 𝑖)𝑛 − 1
𝑖 𝑃
𝐸𝑀𝐼 = =
1 − (1 + 𝑖)−𝑛 𝑎𝑛̅⁄𝑖
Where 𝑃 =principal borrowed
𝑖 =interest rate per rupee per month
𝑛 = number of payments
1. Sanjay takes a personal loan of Rs. 500000 at the rate of 12% per annum for 3
years. Calculate his EMI by using flat rate method.
2. Rahul borrowed Rs. 100000 from a bank co-operative society at the rate of interest
10% p.a., for 2 years. Calculate his EMI using flat rate method.
3. Jyoti buys a car for which she makes down payment of Rs. 350000 and the balance
is to be paid in 3 years by monthly instalments of Rs. 34,000 each. If the financer
charges interest at the rate of 12% p. a and uses flat rate method, find the actual
price of the car.
4. Sharma borrowed Rs. 1000000 from a bank to purchase a house and decided to
repay the loan by equal monthly instalments in 10 years. If bank charges interest
at 9% p.a., compounded monthly, calculate the EMI. (Given (1.0075)120 = 2.4514)
5. Mrs. Dubey borrowed Rs.500000 from a bank to purchase a car and decided to
repay by monthly installments in 5 years. The bank charges interest at 8% p.a.
compounded monthly. Calculate the EMI. (Given (1.0067)60 = 1.4928)
6. Utkarsh purchased a laptop worth Rs.80000. He paid Rs.20000 as cash down and
balance in equal monthly installments in 2 years. If bank charges 9% p.a.
compounded monthly. Calculate the EMI. (Given (1.0075)24 = 1.1964)
7. Mr. Bharti wishes to purchase a flat for Rs.6000000 with a down payment of
₹1000000 and balance in equal monthly payments for 20 years. If bank charges
7.5% p.a. compounded monthly, calculate the EMI. (Given (1.00625)240 = 4.4608)
8. Mr. Dharmendra Patel purchased a motorcycle of Rs.150000 with Rs.25000 down
payment. He wishes to repay balance in equal monthly payments in 4 years. If
bank charges 9% p.a. compounded monthly, calculate the EMI. (Given (1.0075)48 =
1.4314)
9. A person amortizes a loan of Rs. 150000 for a new home by obtaining a 10 years
mortgage at the rate of 12% compounded monthly. Find
(i) EMI
(ii) Total interest paid (Given 𝑎120/0.01 = 69.6891)