Monthly EMI
₹0
Total Interest
₹0
Total Payment
₹0
Yearly Amortization (Compound Monthly)
| Year | Principal | Interest | Total Paid | Balance |
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How Compound Interest Works in Loans
In compound interest loans, interest is added to the principal at regular intervals (monthly for most bank EMI loans). The next period's interest is then calculated on the new, higher principal. The standard bank EMI formula already uses monthly compounding.
Effective Annual Rate = (1 + r/n)^n - 1
Where r = annual rate, n = compounding periods per year (12 for monthly).
- Monthly compounding is standard for all Indian bank EMI loans
- Annual compounding leads to slightly lower effective cost than monthly
- Higher compounding frequency = higher effective interest for the borrower
Frequently Asked Questions
What is the difference between APR and effective annual rate?
APR (Annual Percentage Rate) is the simple annual rate without compounding. EAR (Effective Annual Rate) accounts for compounding within the year. For monthly compounding: EAR = (1 + APR/12)^12 - 1.
Do fixed deposits use compound interest?
Yes. Bank FDs compound quarterly. Post Office savings compounds annually. The compounding frequency affects the effective yield of your investment similarly to how it affects the effective cost of your loan.