How Loan EMI Is Calculated: Formula & Amortization Guide

export interface EMIBreakdown {
  monthlyEMI: number;
  totalInterest: number;
  totalPayment: number;
  amortizationTable: Array<{
    month: number;
    principalPaid: number;
    interestPaid: number;
    remainingBalance: number;
  }>;
}

export function calculateLoanEMI(principal: number, annualRate: number, tenureMonths: number): EMIBreakdown {
  const r = annualRate / (12 * 100);
  const factor = Math.pow(1 + r, tenureMonths);
  const emi = (principal * r * factor) / (factor - 1);
  
  let balance = principal;
  let totalInterest = 0;
  const table = [];

  for (let m = 1; m <= tenureMonths; m++) {
    const interest = balance * r;
    const principalPortion = emi - interest;
    balance = Math.max(0, balance - principalPortion);
    totalInterest += interest;

    table.push({
      month: m,
      principalPaid: Math.round(principalPortion * 100) / 100,
      interestPaid: Math.round(interest * 100) / 100,
      remainingBalance: Math.round(balance * 100) / 100
    });
  }

  return {
    monthlyEMI: Math.round(emi * 100) / 100,
    totalInterest: Math.round(totalInterest * 100) / 100,
    totalPayment: Math.round((principal + totalInterest) * 100) / 100,
    amortizationTable: table
  };
}