EMI Calculator

How an EMI is calculated

EMI stands for Equated Monthly Instalment: the fixed amount you pay every month until a loan is fully repaid. Each payment covers the interest that has built up on the outstanding balance and, with whatever is left over, reduces the principal. In the early years most of the EMI is interest; in the later years most of it is principal.

The formula

EMI = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]

• P is the loan amount (principal).
• r is the monthly interest rate, which is the annual rate divided by 12 and by 100. A 9% yearly rate gives r = 0.0075.
• n is the number of monthly instalments. A 20-year loan has n = 240.

Worked example

Take a home loan of ₹10,00,000 at 9% a year for 20 years. Here r = 0.0075 and n = 240, so the EMI works out to about ₹8,997 per month. Over 240 months you would pay roughly ₹21.59 lakh in total, which means about ₹11.59 lakh goes to interest. Shortening the same loan to 10 years raises the EMI to about ₹12,668 but cuts the total interest to roughly ₹5.2 lakh.

Ways to lower the cost of a loan

• Choose a shorter tenure if your budget allows. The EMI rises, but total interest falls sharply.
• Make part-prepayments in the early years, when most of each EMI is interest. Ask your lender whether prepayment reduces the tenure or the EMI.
• Compare the full cost, not only the rate. Processing fees, insurance bundles and prepayment charges change what you really pay.
• Check floating-rate resets. On a floating-rate loan the EMI or the tenure can change when the benchmark rate moves, so recalculate after each reset.

Frequently asked questions

Is the EMI the same on a reducing-balance and a flat-rate loan?

No. Most bank loans use reducing balance, where interest is charged on what you still owe, and that is what this calculator uses. Flat-rate loans charge interest on the original amount for the whole term, so the effective rate is much higher than the quoted figure.

Why does my bank show a slightly different EMI?

Banks may round the monthly rate, count days differently in the first month, or include fees and insurance. Treat the result here as a close estimate and confirm the exact figure in your sanction letter.

Does a longer tenure always make a loan cheaper?

It makes each EMI smaller but increases the total interest you pay. Pick the shortest tenure whose EMI you can pay comfortably.