What is an EMI?+
An Equated Monthly Instalment (EMI) is a fixed monthly payment made to repay a loan. Each payment covers part of the principal and part of the interest.
How is monthly loan interest calculated?+
Monthly interest = outstanding balance × (annual rate divided by 12). In the early months, most of your payment goes to interest. As the balance reduces, more goes to principal - this is the amortisation effect.
What happens if I make extra payments?+
Extra payments reduce the outstanding principal, which reduces future interest charges and shortens the loan term. Use the 'Extra payment' field to model the impact.
What is the difference between flat rate and reducing balance interest?+
Flat rate calculates interest on the original loan amount throughout the term. Reducing balance (used by most banks) calculates interest on the remaining balance each month - it costs less in total.