Question 1

How is monthly EMI calculated in India?

Accepted Answer

EMI is calculated using the formula: P x R x (1+R)^N / [(1+R)^N - 1], where P is Principal, R is monthly interest rate (Annual Rate / 12 / 100), and N is loan tenure in months.

Question 2

Does paying extra principal reduce loan EMI or tenure?

Accepted Answer

Prepaying principal reduces your outstanding loan balance, allowing you to choose between lowering monthly EMI or shortening overall loan tenure to save interest.

Question 3

What is the difference between flat interest rate and reducing balance EMI?

Accepted Answer

Under flat rate, interest is charged on the full original loan amount throughout the tenure. Under reducing balance, interest is recalculated monthly on the remaining outstanding principal, resulting in significantly lower overall interest.