Sidhi & Associates

EMI (Equated Monthly Installment) is calculated using the formula: EMI = [P × R × (1+R)^N] / [(1+R)^N-1], where P = Principal loan amount, R = Monthly interest rate (Annual interest rate divided by 12 divided by 100), and N = Loan tenure in months. For example, if you take a loan of ₹10 lakhs at 9% annual interest for 20 years (240 months): R = 9/12/100 = 0.0075, EMI = [10,00,000 × 0.0075 × (1.0075)^240] / [(1.0075)^240-1] = ₹8,997.

For a ₹20 lakh home loan at 8.5% interest rate for 20 years (240 months), the monthly EMI would be approximately ₹17,356. Total interest paid over 20 years would be ₹21,65,440. Total amount payable = ₹41,65,440. However, EMI varies based on: (1) Interest rate - at 9% for 20 years, EMI would be ₹17,994, (2) Tenure - at 8.5% for 15 years, EMI would be ₹19,685, for 25 years EMI would be ₹16,059.

You can reduce your EMI through several methods: (1) Make higher down payment to reduce loan amount, (2) Choose longer tenure to spread payments (but increases total interest), (3) Negotiate lower interest rate with bank, (4) Make part-prepayments to reduce principal, (5) Balance transfer to bank offering lower rates, (6) Improve credit score (750+ gets better rates), (7) Opt for step-up EMI if income expected to increase.

Missing EMI payment has serious consequences: Penalty charges of 2-3% on EMI amount, Credit score drops by 50-100 points, After 90 days loan marked as NPA (Non-Performing Asset), Bank can initiate legal proceedings, For secured loans (home/car), bank can seize and auction the asset. The impact lasts on your credit report for 7 years, making future loans difficult and expensive.

Fixed Interest Rate: Rate remains constant, EMI predictable, good when rates expected to rise, but usually 1-2.5% higher. Floating Interest Rate: Linked to RBI repo rate, lower initially, EMI changes with market, better for long tenure. For home loans, floating is usually better as rates tend to stabilize over 15-20 years.