How to Calculate Interest Rate from EMI?

Hi. I came across your question and would like to help you learn how to find interest rate from EMI. I did so a couple of months back when I availed a home loan from Axis Bank. So, here is the entire process related to the calculation of interest rates.

How to Calculate Interest from EMI Amount?

Before we get towards the calculation part, I would like to throw light on the meaning of rate of interest. The rate of interest in the terminology of loans is an amount that the borrower has to pay to the lender. This rate of interest is a percentage of the principal amount of the loan given by the lender. 

If you wish to know the meaning of EMI, check out Venkateshwar’s response, where he has explained everything well.

Now, let me share the process to calculate this rate of interest.

The formula for EMI calculation is, 

P x R x (1+R)^N / [(1+R)^N-1]

P = Principal loan amount

R = Rate of Interest

N = Number of instalments every month

Here, you will have to consider the processing fee as well, which determines your EMI. 

Now, let us consider that you took a loan of 51 lakh rupees at an interest rate of 10% p.a, and the loan repayment time is 15 years. Then considering a processing fee of 1%, your EMI will be:

EMI = 5100000 x 0.0083 x (1 + 0.0083)^ 180/ [(1 + 0.0083)6180]-1

R, or the rate of interest on the loan is calculated monthly through the formula:

R = Annual rate of interest/12/100. For instance, if R = 10% per annum, then R = 10/12/100 = 0.0083.

This brings my answer to an end. I hope this helps you to understand how to find interest rate from EMI.

Loans have become an important part of our lives today. Be it buying a house or a car, loans help us achieve some life goals. I think that’s why you want to know how to calculate EMI interest.

The most important thing that is associated with loans is EMI. EMI (Equated Monthly Installment) is the monthly amount you are required to pay towards a loan you opt for. EMI payments contain contributions towards both interest and principal on the loan amount. The interest component constitutes EMI payment’s major portion in the early stages. As you progress along with the tenure of the loan, the portion of interest repayment decreases and contribution towards the principal repayment increases.

How to Calculate Interest Rate from EMI

EMI = P x r x (1+r)n/((1+r)n-1)

Here, P = Principal Loan Amount,

r = monthly rate of interest

n = loan duration in number of months.

(For instance, If rate of interest is 14% p.a., then r = 14 / 12 / 100= 0.011667),

You can use this formula if you want to know how to calculate interest rate on loan from EMI.

Let’s take an example,

If you borrow Rs. 1 lakh from the bank at 14 percent annual interest for three years (36 months), then EMI = 100000 x 0.011667 x (1+0.011667)36/((1+0.011667)36 - 1) = Rs. 3,418.

This means that you will have to pay Rs. 3,418 for 36 months to repay the loan entirely. Your total repayment amount will be Rs. 123039 which includes the interest of Rs. 23039 and principal of ₹100000.

I hope now you know how to calculate interest rate from EMI amount.

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I hope you like my answer on how to calculate EMI interest.