How to calculate loan amortization

Hi Shreekumar,

1. Interest on 1st installment

Interest amount of first EMI will be Rs.22917, calculated as under

25,00,000 * 11%*1 month / 12 months

By deducting this amount (Rs. 22917) of interest from EMI you will get Principal of first installment.

2. Interest on 2nd installment

While calculating interest portion in 2nd month's installment, first you will have to deduct Principal amount of 1st installment (as per calculation above) from total loan amount (Rs.25 lacs), on balance amount apply 11% for 1 month.

Example,

suppose you EMI is Rs.50000, interest and pricipal will be as under

1 First installment

Interest Rs.22917

Principal Rs.27083  (50000 - 22917)

2. Second installment

Interest Rs. 22668 (2500000-27083) * 11% *1 month / 12 months

Principal Rs.27332 (50000 - 22668)

you will have to calculate like wise for rest of the installments

Hope this will be clear to you,

Thanks,

Devanand

Hello Devanand Sir, I have understood your above example very clearly but I don't understand that how they fix a Monthly installment EMI amount.Like you have said it in your example "suppose EMI of  Rs.50,000" .

Hi Shreekumar,

This is the formula to caluculate EMI as under

E = P×r×(1 + r)n/((1 + r)n - 1)

Where,

E is EMI

P is Priniple Loan Amount

r is rate of interest calualted in monthly basis it should be = Rate of Annual interest/12/100

if its 10% annual ,then its 11/12/100=0.009167

n is tenture in number of months

Now calculating EMI in your case,

Eg: For 25,00,000 at 11% annual interest for a period of 60 months

it comes  to 25,00,000*0.009167*(1 + 0.009167)60/((1 + 0.009167)60 - 1)

= 22917.5 X 1.72895 / 0.72895

= 54357

Your EMI will be Rs.54357/-

Is it so ??

Thanks,

Devanand

Hi Devanand Sir

Can I kow the Accouting Entries For this Issue

Hi Sridhar,

Accounting entries,

At the time of disbursement of loan,

Property A/c.                              Dr. 25,00,000 (as loan amount is directly paid to the saler

                                                                      hence property A/c. debited and not bank a/c.)

   To Loan A/c. (liability)                                    Cr. 25,00,000

When installment paid

Loan A/c.                                   Dr. 31,440 (principal amount portion of EMI)

Interest A/c. (Expense)               Dr. 22,917

           To Bank A/c.                                          Cr. Rs.54357

likewise entries for the rest of installments.

Thanks,

Devanand

The best way to calculate loan and EMI is on the basis of mathematical formula:

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

where P stands for the loan amount or principal,

R is the interest rate per month [if the interest rate per annum is 11%, then the rate of interest will be 11/(12 x 100)],

and N is the number of monthly instalments.

Source : https://emicalculators.in/