What is the formula for EMI calculation?+
EMI 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 rate ÷ 12 ÷ 100), and n = Number of monthly instalments (loan tenure in months).
How to reduce my EMI?+
You can reduce your EMI by: (1) Making a larger down payment to reduce the principal, (2) Choosing a longer loan tenure (though total interest paid increases), (3) Negotiating a lower interest rate with your bank, (4) Making part-prepayments to reduce the outstanding principal.
What happens if I miss an EMI payment?+
Missing an EMI payment results in: (1) Penalty charges of 1–2% per month on the overdue amount, (2) Negative impact on your CIBIL/credit score, (3) Possible loan account being classified as NPA after 90 days of non-payment, (4) Legal proceedings in extreme cases.
What is a good EMI to income ratio?+
Financial experts recommend keeping your total EMI burden (all loans combined) below 40–50% of your monthly net take-home salary. For a home loan alone, keeping it below 35% is considered healthy.
Can I foreclose my loan to avoid paying more EMIs?+
Yes, you can foreclose (prepay) most loans after a lock-in period. RBI guidelines prohibit foreclosure charges on floating rate retail loans. Fixed rate loans may have a prepayment penalty of 1–4%. Always check your loan agreement before foreclosing.
What is the difference between flat rate and reducing balance EMI?+
Flat rate EMI calculates interest on the full original principal throughout the tenure. Reducing balance (diminishing balance) calculates interest only on the outstanding principal each month — this is far cheaper. Most bank loans use reducing balance method.