How is a loan EMI calculated?

An EMI (equated monthly instalment) is the fixed amount you pay every month to repay a loan. Most lenders in India use the reducing-balance method, where interest is charged on the outstanding 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 (annual rate ÷ 12 ÷ 100)
• n is the number of monthly instalments

What changes your EMI

• A larger amount increases the EMI proportionally.
• A higher interest rate increases both the EMI and the total interest.
• A longer tenure lowers the EMI but usually increases the total interest you pay over the loan.

Early in the loan, more of the EMI is interest

Because interest is charged on the outstanding balance, early EMIs contain more interest and less principal. As the balance reduces, more of each EMI goes towards principal.

Try it yourself

Use our EMI calculator to compare scenarios. Remember that the rate you enter is your assumption — the actual rate, fees and terms are set by the lender after assessing your application.