EMI (equated monthly instalment) is the fixed amount you pay every month to repay a loan. Each EMI has two parts: interest for that month and principal that reduces your loan. Here is the formula and what it means for your pocket.
The EMI formula
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
- P = loan amount (principal)
- r = monthly interest rate = annual rate ÷ 12 ÷ 100
- n = number of monthly instalments (years × 12)
This is the standard reducing-balance formula: interest is charged each month only on the loan amount still outstanding.
Example 1: Home loan
Loan ₹30,00,000 at 8.5% a year for 20 years.
- r = 8.5 ÷ 12 ÷ 100 = 0.0070833
- n = 20 × 12 = 240
- EMI ≈ ₹26,035
- Total paid ≈ ₹62.48 lakh, so total interest ≈ ₹32.48 lakh
The same loan over 15 years has an EMI of about ₹29,542, but total interest falls to about ₹23.18 lakh, a saving of over ₹9 lakh for about ₹3,500 more a month.
Example 2: Car loan
Loan ₹8,00,000 at 9% a year for 5 years (60 months).
- EMI ≈ ₹16,607
- Total paid ≈ ₹9.96 lakh, so total interest ≈ ₹1.96 lakh
These rates are only examples. Use the rate your bank actually offers you.
Why early EMIs are mostly interest
Interest for a month = outstanding loan × r. In the home loan example, the first month's interest is 30,00,000 × 0.0070833 ≈ ₹21,250, so only about ₹4,785 of the first EMI reduces the loan. As the balance falls, the interest part shrinks and the principal part grows. This is why prepaying early in a loan saves the most interest.
What changes your EMI
- Higher loan amount: EMI rises in direct proportion.
- Higher interest rate: EMI and total interest both rise.
- Longer tenure: lower EMI but much more total interest.
- Floating rates: when your bank changes the rate, it usually changes either your EMI or your remaining tenure.
Calculate yours
Use the EMI Calculator for any home, car or personal loan, with a year-by-year schedule. For a home loan with part-prepayments or rate changes, the Home Loan EMI Calculator shows how much interest and how many months you save.
These examples are for understanding only. Your bank's exact EMI can differ slightly because of rounding, processing fees, insurance or the date your EMI starts. Check your loan agreement or ask your lender.
Frequently asked questions
What is the formula for EMI?
EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1], where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of months.
What is the EMI for a ₹30 lakh home loan at 8.5% for 20 years?
About ₹26,035 a month. Over 20 years you would pay about ₹62.48 lakh in total, of which about ₹32.48 lakh is interest.
Is a longer tenure better?
A longer tenure lowers the EMI but raises total interest a lot. Choose the shortest tenure whose EMI you can comfortably afford.
Does prepayment reduce EMI or tenure?
Banks usually let you choose. Reducing the tenure saves more interest; reducing the EMI eases your monthly budget.