How EMI Is Calculated: Formula, Examples and Prepayment
November 9, 2026
An EMI, or equated monthly instalment, is the fixed amount you pay your lender every month until a loan is repaid. Each EMI covers that month's interest plus a slice of the loan itself. Early in the loan most of the payment is interest; by the end, almost all of it is repaying the loan.
The EMI formula
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- P is the loan amount (the principal).
- r is the monthly interest rate: the annual rate divided by 12, then by 100. At 8.5% a year, r is 8.5 ÷ 12 ÷ 100 = 0.0070833.
- n is the number of monthly instalments. A 20-year loan has 240.
The formula finds the one fixed payment that, month after month, pays all the interest due and clears the loan exactly on the last instalment. The EMI calculator works it out instantly.
Worked examples
Home loan. ₹50,00,000 at 8.5% a year for 20 years gives an EMI of ₹43,391. Over 240 months you pay ₹1,04,13,879 in total, of which ₹54,13,879 is interest. The interest is more than the loan itself.
Car loan. ₹8,00,000 at 9.5% for 5 years gives an EMI of ₹16,801, with ₹2,08,089 of interest and ₹10,08,089 repaid in total.
Personal loan. ₹3,00,000 at 14% for 3 years gives an EMI of ₹10,253, with ₹69,118 of interest and ₹3,69,118 repaid in total.
Where your first EMI goes
In the home loan example, the first month's interest is ₹50,00,000 × 0.0070833 = ₹35,417. Of the ₹43,391 EMI, only ₹7,974 reduces the loan. That's why about 82% of an early EMI is interest, and why prepaying early in a loan saves the most.
Each month the outstanding balance falls a little, so the interest part shrinks and the principal part grows, while the EMI stays the same.
How tenure changes the cost
The same ₹50,00,000 home loan at 8.5%, over different tenures:
| Tenure | EMI | Total interest |
|---|---|---|
| 10 years | ₹61,993 | ₹24,39,141 |
| 15 years | ₹49,237 | ₹38,62,656 |
| 20 years | ₹43,391 | ₹54,13,879 |
| 25 years | ₹40,261 | ₹70,78,406 |
| 30 years | ₹38,446 | ₹88,40,443 |
Stretching the loan from 20 to 30 years lowers the EMI by ₹4,945 a month but adds ₹34,26,564 of interest. A longer tenure makes each payment easier and the loan much more expensive.
How the interest rate changes the cost
The same loan over 20 years, at different rates:
| Interest rate | EMI | Total interest |
|---|---|---|
| 8% | ₹41,822 | ₹50,37,281 |
| 8.5% | ₹43,391 | ₹54,13,879 |
| 9% | ₹44,986 | ₹57,96,711 |
| 9.5% | ₹46,607 | ₹61,85,574 |
| 10% | ₹48,251 | ₹65,80,260 |
Half a percentage point, from 8.5% to 9%, adds ₹1,595 to the EMI and ₹3,82,832 of interest over the loan. When you compare offers, small differences in rate matter.
Flat rate versus reducing balance
The formula above charges interest on the reducing balance: each month, only on what you still owe. Some lenders, especially for personal and vehicle loans, quote a flat rate, which charges interest on the full original amount for the whole term.
Take ₹3,00,000 over 3 years at 10%:
- Flat rate: interest is ₹3,00,000 × 10% × 3 = ₹90,000. Spread over 36 months, the EMI is ₹10,833.
- Reducing balance: the EMI is ₹9,680, with ₹48,486 of interest.
The 10% flat loan costs about the same as a reducing-balance loan at roughly 17.9%. If a lender quotes a flat rate, ask for the reducing-balance equivalent before comparing it with other offers.
Prepayment
A prepayment is any amount you pay on top of your EMIs. It goes straight to reducing the principal, so every later month charges interest on a smaller balance. You can usually choose to keep the EMI and shorten the tenure, or keep the tenure and lower the EMI. Shortening the tenure saves more interest.
Because early EMIs are mostly interest, a prepayment in the first few years saves far more than the same amount near the end. Check your loan agreement for prepayment charges first. Many floating-rate loans to individuals carry none, while fixed-rate loans often do.
Floating rates
With a floating-rate loan, the rate can change during the term. When it does, lenders often keep your EMI the same and change the tenure instead, so a rate rise can quietly add years to the loan. Ask your lender which one they'll adjust, and check your statement after each rate change.
Common mistakes
- Using the annual rate in the formula. r must be the monthly rate. Using 8.5% a year as if it were 8.5% a month gives a nonsense result.
- Looking only at the EMI. The lowest EMI usually means the longest tenure and the highest total interest. Compare total interest too.
- Forgetting fees. Processing fees, insurance bundled into the loan and other charges aren't in the EMI formula, but they're part of what the loan costs.
Related tools
- Any loan. The loan calculator shows a full amortization schedule.
- Home loans with taxes and insurance. Try the mortgage calculator.
- Savings. To see how money grows with compound interest, use the interest calculator.