How to calculate loan EMI, step by step
An EMI is a fixed monthly payment that covers interest on what you still owe plus a slice of the principal. One formula gives the number; understanding its shape helps you choose a tenure and decide on prepayments.
The formula
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)- P: principal, the amount borrowed.
- r: monthly interest rate = annual rate ÷ 12 ÷ 100.
- n: number of monthly instalments = years × 12.
This is the standard formula for a reducing-balance loan, the kind used for almost all home, car and personal loans from Indian banks. It's also exactly what the Loan EMI Calculator uses.
Worked example: ₹10 lakh at 8.5% for 20 years
- P = 10,00,000
- r = 8.5 ÷ 12 ÷ 100 = 0.0070833…
- n = 20 × 12 = 240
Plugging in gives an EMI of ₹8,678.23. Over 240 months you pay ₹20,82,775.76 in total, of which ₹10,82,775.76 is interest: more than the amount borrowed.
| Same ₹10 lakh loan | EMI | Total interest |
|---|---|---|
| 8.5%, 20 years | ₹8,678.23 | ₹10,82,775.76 |
| 8.5%, 15 years | ₹9,847.40 | ₹7,72,531.20 |
| 9.0%, 20 years | ₹8,997.26 | ₹11,59,342.29 |
Cutting the tenure from 20 to 15 years raises the EMI by about ₹1,169 a month but saves over ₹3.1 lakh in interest. Half a percentage point on the rate costs about ₹76,500 over 20 years.
Why early EMIs are mostly interest
Each month's interest is charged on the outstanding balance. In month one of the example, interest is 10,00,000 × 0.0070833 = ₹7,083.33, so only ₹1,594.90 of the ₹8,678.23 EMI reduces the principal. As the balance falls, the interest part shrinks and the principal part grows; in the final years almost the whole EMI is principal.
That's why, after a few years of paying, the outstanding balance often looks surprisingly high: after the first 12 EMIs here you still owe ₹9,80,097.71.
What a prepayment really saves
Because early payments are interest-heavy, money paid towards principal early saves the most. Continuing the example: a one-time prepayment of ₹1,00,000 after the 12th EMI, keeping the EMI unchanged, shortens the loan by 48 months (4 years) and saves about ₹3,20,700 in interest.
Lenders usually let you choose between keeping the EMI and reducing the tenure (what we computed, and usually the bigger saving) or keeping the tenure and reducing the EMI. In India, the RBI does not allow foreclosure or prepayment charges on floating-rate loans to individual borrowers for non-business purposes; fixed-rate loans may carry charges, so check your loan agreement.
Flat rate vs reducing balance
Some lenders quote a flat rate: interest is calculated on the original principal for the whole tenure, even as you repay. A flat rate looks lower but costs much more than the same number on a reducing balance. Always ask for, or compute, the reducing-balance equivalent (often shown as the APR) before comparing offers.
Calculate it yourself
In a spreadsheet, =PMT(8.5%/12, 240, -1000000) returns the same ₹8,678.23. Or enter the amount, rate and tenure in the Loan EMI Calculator to see the EMI, total interest and interest share at once. It runs in your browser, so nothing about your loan is sent anywhere. The figures here are illustrations; your lender's schedule may differ slightly because of rounding, processing fees or the exact disbursal date.
Common questions
What is the EMI formula?
EMI = P x r x (1 + r)^n / ((1 + r)^n - 1), where P is the principal, r is the annual rate divided by 12 and by 100, and n is the number of monthly instalments.
What is the EMI on a 10 lakh loan at 8.5% for 20 years?
Rs 8,678.23 per month. Over 240 months you pay Rs 20,82,775.76 in total, of which Rs 10,82,775.76 is interest.
Is it better to reduce EMI or tenure after a prepayment?
Keeping the EMI and reducing the tenure usually saves more interest. In the 10 lakh example, prepaying Rs 1 lakh after a year and keeping the EMI shortens the loan by 4 years and saves about Rs 3.2 lakh.
Why is a flat interest rate more expensive?
A flat rate charges interest on the original principal for the whole tenure, even as you repay it. The same headline number on a reducing balance costs far less.
Try it: Loan EMI Calculator — runs in your browser, nothing uploaded.