How is an EMI against a loan calculated?
An EMI has 2 components
An EMI has 2 components in every instalment - Principal (P) and Interest (I). Since the EMI is fixed, each instalment has a certain principal component and a certain interest component. Interest is computed based on the outstanding principal. Early in the tenor of a loan, the principal outstanding in the highest, and hence the interest component of each instalment is high. As the tenor progresses, the interest component reduces, as the principal outstanding becomes lower. P + I is constant in eah EMI. Early in the loan the "I" component is the highest (on account of the loan principal being the highest) and as the loan progresses the "I" component becomes lower and the "P" component of each EMI increases..