How Is EMI Calculated? Formula with Examples
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EMI is calculated with the formula EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1). P is the loan amount, r is the monthly interest rate (yearly rate ÷ 12 ÷ 100) and n is the number of monthly instalments. For example, a ₹10 lakh loan at 9% for 5 years has an EMI of about ₹20,758.
The EMI stays the same every month, but what it pays for changes: early EMIs are mostly interest and later ones are mostly principal. This guide walks through the formula step by step with rupee examples. Our EMI Calculator does the maths and shows a year-by-year schedule.
EMI calculation formula explained
EMI stands for equated monthly instalment: a fixed payment that clears the loan and all its interest by the end of the tenure. Banks in India use the reducing-balance method. Each month's interest is charged only on the principal still outstanding, not on the original loan amount.
- P = principal (loan amount), e.g. ₹10,00,000
- r = monthly rate. For 9% a year, r = 9 ÷ 12 ÷ 100 = 0.0075
- n = tenure in months. For 5 years, n = 60
Once you know the EMI, two more numbers follow: total payment = EMI × n, and total interest = total payment − P.
EMI calculation example: ₹10 lakh at 9% for 5 years
- r = 0.0075 and n = 60.
- (1 + r)n = 1.007560 ≈ 1.5657.
- EMI = 10,00,000 × 0.0075 × 1.5657 ÷ (1.5657 − 1) ≈ ₹20,758 a month.
- Total payment = ₹20,758.36 × 60 ≈ ₹12,45,501.
- Total interest ≈ ₹2,45,501.
In month 1, interest = 0.75% of ₹10,00,000 = ₹7,500, so ₹13,258 of the EMI reduces your principal. Next month the interest is charged on the smaller balance of about ₹9,86,742. Interest keeps falling and the principal part keeps rising.
| Year | Principal paid | Interest paid | Balance at year end |
|---|---|---|---|
| 1 | ₹1,65,830 | ₹83,270 | ₹8,34,170 |
| 2 | ₹1,81,386 | ₹67,714 | ₹6,52,784 |
| 3 | ₹1,98,401 | ₹50,699 | ₹4,54,383 |
| 4 | ₹2,17,013 | ₹32,088 | ₹2,37,370 |
| 5 | ₹2,37,370 | ₹11,730 | ₹0 |
Home loan EMI example: ₹30 lakh at 8.5% for 20 years
With a longer loan, the share of interest grows a lot. For ₹30,00,000 at 8.5% for 20 years (240 months), r = 8.5 ÷ 1200 ≈ 0.007083:
- EMI ≈ ₹26,035 a month
- Total payment ≈ ₹62,48,327
- Total interest ≈ ₹32,48,327, more than the loan itself
In the very first EMI, ₹21,250 is interest (8.5% ÷ 12 of ₹30 lakh) and only about ₹4,785 repays principal. Over the whole first year you pay about ₹2,52,709 of interest and just ₹59,707 of principal. This is why prepaying in the early years saves so much. Our Loan Prepayment Calculator shows the exact saving.
Personal loan EMI example: ₹5 lakh at 11% for 3 years
Personal loans are shorter and usually cost more. For ₹5,00,000 at 11% for 36 months, r = 11 ÷ 1200 ≈ 0.009167:
- EMI ≈ ₹16,369 a month
- Total payment ≈ ₹5,89,297
- Total interest ≈ ₹89,297
The first EMI includes about ₹4,583 of interest and ₹11,786 of principal. Because the tenure is short, principal makes up most of each EMI from the start, and total interest is a much smaller share of the loan than on a 20-year home loan. Before you sign, also add up the processing fee, GST on that fee, and any insurance the lender bundles in. These raise the real cost above the headline rate.
How tenure changes your EMI and total interest
A longer tenure lowers the EMI but sharply raises the total interest. Here is the same ₹30 lakh loan at 8.5%:
| Tenure | Monthly EMI | Total interest |
|---|---|---|
| 10 years | ₹37,196 | ₹14,63,485 |
| 15 years | ₹29,542 | ₹23,17,594 |
| 20 years | ₹26,035 | ₹32,48,327 |
| 25 years | ₹24,157 | ₹42,47,044 |
| 30 years | ₹23,067 | ₹53,04,266 |
Going from 20 to 30 years cuts the EMI by only about ₹2,968 a month but adds over ₹20 lakh of interest. Pick the shortest tenure whose EMI you can pay comfortably. Many lenders look for all your EMIs together to stay within about 40–50% of take-home pay.
How to calculate EMI in a calculator or Excel
On a phone calculator, first work out (1 + r)n with the power key (xy), then put it into the formula as in the example above. In Excel or Google Sheets, use =PMT(rate/12, months, -loan). For ₹10 lakh at 9% for 5 years, =PMT(9%/12, 60, -1000000) gives ₹20,758.36. A free online EMI calculator is the quickest option and also gives the full amortisation schedule.
Flat rate vs reducing balance EMI
Some lenders of consumer durables, cars or personal loans quote a "flat rate". There, interest is worked out on the full loan for the whole tenure: ₹10 lakh at 9% flat for 5 years means ₹4,50,000 of interest and an EMI of ₹24,167. That costs much more than the ₹20,758 reducing-balance EMI at the same headline rate. A flat rate of 9% works out to roughly 16% on a reducing basis, so always ask which method the lender uses.
Frequently asked questions
What is the EMI for a ₹10 lakh loan for 5 years?
At 9% a year it is about ₹20,758 a month, with total interest of about ₹2,45,501. At 11% it rises to about ₹21,742. Check your own rate in the EMI calculator.
Why is most of my early EMI going to interest?
Interest is charged on the outstanding balance, which is highest at the start. As the balance falls, the interest part shrinks and more of each EMI repays the principal.
Does EMI change if the interest rate changes?
On a floating-rate loan, a rate change means your bank either changes the EMI or, more often, keeps the EMI the same and changes the remaining tenure. Ask your lender which option it applied.
Does prepayment reduce EMI?
It can. After a part-prepayment you can usually choose a lower EMI or a shorter tenure. Shortening the tenure saves more interest.
This article is for information only and is not financial advice. Interest rates shown are examples; use the rate your lender offers.