How EMI is calculated
The standard EMI formula is:
EMI = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]
Where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12, as a decimal), and n is the total number of monthly payments (years × 12).
Worked example
Loan amount AED 100,000, annual interest rate 6%, tenure 5 years:
- Monthly rate r = 6% ÷ 12 = 0.5% = 0.005
- Number of payments n = 5 × 12 = 60
- Monthly EMI ≈ AED 1,933.28
- Total payment over 60 months ≈ AED 115,996.80
- Total interest ≈ AED 15,996.80
A longer tenure lowers the monthly EMI but generally increases total interest paid — always compare total repayment, not just the monthly figure, when choosing between loan offers.