What is EMI?
EMI or Equated Monthly Installment is the amount paid against the business loan availed. A loan is an important requirement for every business owner to meet the financial requirements of the business.EMI is payment in installment towards the loan.
EMI consists of two important components, principal loan amount and the charge for the loan i.e. interest. During the start of the repayment tenure, the interest is high as compared to the principal amount. And as time passes, the principal amount becomes higher than the interest.
What is the EMI Amortization schedule?
The amortization schedule is a tabular representation of the monthly payments of the business loan EMI. The table shows interest and principal, and the amount to be paid every month during the loan tenure. It basically helps in understanding the loan repayment schedule and the outstanding payment at the end of each month. This table will also help if the business owner wants to prepay the loan before its tenure.
How is EMI calculation done?
EMI calculation depends on the following:
- Principal amount
- Rate of interest
- Loan tenure
EMI is calculated by:
EMI = Principal amount x interest rate x (1 + interest rate) loan tenure / ((1 + interest rate) loan tenure – 1))
As the EMI is directly related to the amount borrowed and the interest, if a high amount is borrowed, the EMI will be high and if a low loan amount if borrowed, the EMI will be low.
Also, opting for a long loan tenure will lower the EMI amount which will increase the interest.
Note: An important factor that affects the EMI is the interest rate. There are two types of interest for a loan (fixed rate or floating rate of interest). Choosing the fixed rate will keep the WEMI constant throughout the loan tenure. And if you choose the floating rate of interest, the EMI will fluctuate depending on the rates in the market.
If you want to take a loan for your business on an affordable interest rate, contact Gromor Finance.