How to calculate EMI:
a simple guide

What is EMI?

EMI stands for equated monthly instalment. It is the fixed amount you pay your lender every month until a loan is cleared. Home loans, car loans, personal loans and education loans are commonly repaid this way.

Each EMI has two parts: interest on the amount you still owe, and a slice of the principal. In the early years most of the payment is interest. As the balance falls, the interest part shrinks and the principal part grows, although the total EMI stays the same.

Three inputs decide the number:

• Loan amount (principal): how much you borrow.
• Interest rate: the annual rate your lender charges.
• Tenure: how long you take to repay, in years or months.

How is EMI calculated?

Lenders usually charge interest on the reducing balance: each month’s interest is worked out on what you still owe, not on the original loan. The standard formula for the monthly instalment is:

The formula looks heavy, but only one step needs care: turning the annual rate into a monthly decimal and the tenure into months. Get those two right and the rest is plugging in numbers.

A quick check on any result: EMI × n must be larger than the loan amount P, and the excess is the total interest you will pay over the loan.

A simple example

Take a loan of ₹10,00,000 at 9% a year for 5 years. Work through it in four steps:

1. 1Monthly rate: r = 9 ÷ 12 ÷ 100 = 0.0075.
2. 2Number of payments: n = 5 × 12 = 60.
3. 3Growth factor: (1 + r)ⁿ = (1.0075)⁶⁰ ≈ 1.56568.
4. 4EMI = 10,00,000 × 0.0075 × 1.56568 ÷ (1.56568 − 1) ≈ ₹20,758.

Watch how each payment splits. In month 1 the interest is ₹10,00,000 × 0.0075 = ₹7,500, so ₹13,258 of the EMI reduces the loan and the balance falls to about ₹9,86,742. By month 60 the interest part is only about ₹155. The EMI never changes, but the mix shifts steadily from interest to principal.

What changes your EMI

Each input pulls the number in a predictable direction:

• Amount: the EMI rises in proportion to the loan. Borrowing ₹5,00,000 instead of ₹10,00,000, at the same rate and tenure, halves the EMI to ₹10,379.
• Rate: a higher rate raises the EMI. On ₹10,00,000 for 5 years, 8% gives ₹20,276 and 10% gives ₹21,247.
• Tenure: a longer tenure lowers the EMI but raises the total interest, as the table shows.

Total interest here is the unrounded EMI × number of months − ₹10,00,000. Stretching from 5 to 20 years cuts the EMI by more than half, but the interest bill grows from about ₹2.5 lakh to about ₹11.6 lakh.

Ways to lower your EMI

You can lower the monthly figure or the total cost, but rarely both at once. Decide which matters more, then use these levers:

• Make a larger down payment. On an ₹8,00,000 purchase, paying ₹1,60,000 upfront leaves a ₹6,40,000 loan and an EMI of ₹13,285 (9%, 5 years). Paying ₹80,000 upfront leaves ₹7,20,000 and an EMI of ₹14,946.
• Choose the tenure deliberately. A longer tenure gives a smaller EMI but more interest overall. Pick the shortest tenure whose EMI you can pay comfortably.
• Prepay when you can. On the ₹10,00,000, 10-year loan at 9% (EMI ₹12,668), a ₹1,00,000 prepayment after 3 years, with the EMI unchanged, ends the loan about 14 months sooner and saves roughly ₹78,000 in interest.
• Compare offers on rate and fees. A small difference in rate adds up over many years, and processing fees add to the real cost.
• Know your rate type. A fixed rate keeps the EMI steady. With a floating rate the lender can revise the rate when the benchmark changes, which moves either your EMI or your remaining tenure. Ask which applies.