Question 1

How is EMI calculated?

Accepted Answer

EMI is calculated using the formula: EMI = P × r × (1+r)^n / ((1+r)^n - 1), where P is principal, r is monthly interest rate, and n is number of monthly installments. Our calculator uses this standard reducing balance method.

Question 2

Does prepayment reduce EMI or tenure?

Accepted Answer

Prepayment can either reduce your EMI amount while keeping the tenure same, or reduce the tenure while keeping EMI same. Reducing tenure saves more on total interest paid.

Question 3

What is a good EMI-to-income ratio?

Accepted Answer

Financial experts recommend keeping your total EMI obligations below 40-50% of your monthly take-home salary. Lenders typically approve loans where EMI doesn't exceed 50-60% of net income.

Question 4

Is flat rate or reducing rate EMI better?

Accepted Answer

Reducing balance rate is better for borrowers as interest is charged only on the outstanding principal. A 10% flat rate is roughly equivalent to an 18-19% reducing balance rate.

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