Although they provide a great solution for breaking down the cost, they also come with added interest. That's why it's important to understand how to calculate EMI interest to determine your total cost.
EMIs refer to the fixed monthly payments that one needs to make to pay off a loan or credit purchase. These payments include both the principal amount and the interest calculated on it. The EMI amount remains constant throughout the loan tenure, and you pay it until the full amount is repaid.
When it comes to calculating EMI, the following variables come into play: the loan amount, the rate of interest, and the loan tenure. Typically, the higher the loan amount, the longer the loan tenure or the higher the interest rate, the higher the EMIs will be.
Let's now see how to calculate EMI interest using the formula:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Where, P is the principal amount, R is the rate of interest per month, and N is the loan tenure in months.
For instance, let's say you want to borrow INR 1,00,000 at a rate of 12% per annum for a tenure of two years. To calculate the EMI, you would need to convert the rate to monthly (12/12 months), which reduces the interest rate to 1% per month.
Using the formula, we get:
EMI = [1,00,000 x 1% x (1+1%)^24]/[(1+1%)^24-1]
= INR 4,874
Therefore, your EMI for a two-year loan would be INR 4,874, and the total amount payable would be INR 1,16,976, which includes INR 16,976 in interest.
If you find the above formula too tedious to calculate, there are various online EMI calculators available that will do the job for you. All you need to do is enter the loan amount, interest rate, and tenure, and the calculator will compute the EMI and total interest payable.
Besides the formula and online tools, EMI payments can be made using your Bajaj EMI card. This card is a payment instrument that allows you to make purchases by splitting your payment into EMI, with the interest usually being lower than those without such a card.
To use the Bajaj EMI card to pay for your purchases, follow the steps below:
Step 1: Visit the merchant store – you can use your Bajaj EMI Card to shop offline as well as online.
Step 2: Select the product you want to buy – once you have identified the product you want to buy, check the price and see if EMI options are available.
Step 3: Swipe your card – if EMIs are available for your purchase, swipe your Bajaj EMI card, choose the EMI tenure that suits you, and enter the OTP you receive on your registered mobile number.
Step 4: Walk out with your product – After a successful transaction, you can go ahead and walk out of the store with your purchase.
To conclude, knowing how to calculate EMI interest will help you plan your finances better and determine the overall cost of your purchase. Besides, with the Bajaj EMI card, you not only get to spread your payments over several months but can also reduce your interest payments. Just remember to do some research before applying for such cards and ensure that you have a good credit score for easy approval.