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## What is the meaning of EMI?

EMI is essentially the acronym of the word, equated monthly instalment & this is said to be the fixed amount which is made by a borrower to the lender. In addition to this, it is said to be the specified date that too every month (of the calendar month). Another aspect of this equated monthly instalment or the EMI is that these EMIs are not only used to pay off the interest but also the principal every month.

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Such a step is taken in order to ensure that the loan is being paid completely in a stipulated time & without much stress to the individual who is borrowing the loan. An individual will have to understand the fact that this EMI is said to be different as it is essentially based on the payment plans & the type of loan being taken. And as far as the car loan is concerned then the basic idea of EMI remains unchanged.

## What is the use of EMI?

EMI or the equated monthly instalment turns out to be quite a useful tool to the people & the reason is that these borrowers will get to have an idea as to how much amount is to be paid monthly. Moreover, this will make things easier for the people especially when they are planning their monthly budget.

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## What is the formula to calculate the car loan EMI?

In order to calculate the EMI loan (payments), you can make use of the 2 formulae which have been mentioned here –

**Car loan EMI payment formula**

\(E\, =\, P \times \, r\, \times\frac{(\,1\,+\,r)^n}{((\,1\,+\,r\,)^n-1) }\)

According to the equation mentioned above, E stands for EMI, whereas the principal loan amount is denoted by P, rate of interest or the interest rate is r & the loan term or the tenure or duration of the loan is represented by n.

**Car loan EMI payment formula**

\(M\, =\, P\, (\frac{ J}{1\, -\, (\,1\,+\,J\,)^{-n}} )\)

As per the equation about the car loan EMI payment, the payment amount is represented by M, while the principal or the amount of money is P & this is the amount which has been borrowed. On the other hand, interest rate or the rate of interest is denoted by J & this is not the annual interest rate. Finally, the total number of payments is denoted by n.

**Formula for EMI in arrears is**

\(P\, =\, A\, .\, \frac{\,1- \,(\,1\,+\,r\,)^{-n}}{r} \)

or

\(A\, =\, P\, .\, \frac{\,r \,(\,1\,+\,r\,)^{n}}{(\,1\, + \, r\, )^{n}\,-\,1 } \)

In the above equation / formula, P is the principal amount (that is the amount which has been borrowed) whereas the periodic amortization payment is denoted by A. The interest rate is r & it is usually divided by 100 or 12 in case of monthly instalments. Finally n is the number of payments.

## How to use a car loan EMI calculator?

If you wish to make use of the online car loan EMI calculator, then you will have to first enter the car loan amount followed by the interest rate & loan tenure before you click on calculate tab.