How EMI Is Calculated, With a Worked Example in Rupees
By the Logicox team 3 min read
An EMI, or equated monthly instalment, is the fixed amount you pay every month until a loan is repaid. Banks in India and Pakistan quote it for home loans, car loans, personal loans and phones bought on instalments. The number looks simple, but it hides how much of each payment is interest. This guide shows exactly how it is worked out.
The EMI formula
Every bank uses the same formula for a standard reducing-balance loan:
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P is the loan amount (the principal).
- r is the monthly interest rate: the yearly rate divided by 12, then by 100.
- n is the number of monthly payments: the tenure in years × 12.
Worked example: ₹5,00,000 at 10% for 5 years
- Monthly rate: 10 ÷ 12 ÷ 100 = 0.0083333.
- Number of payments: 5 × 12 = 60.
- (1 + r)n: 1.0083333 raised to the power 60 = 1.645309.
- Top of the fraction: 5,00,000 × 0.0083333 × 1.645309 = 6,855.45.
- Bottom of the fraction: 1.645309 − 1 = 0.645309.
- EMI: 6,855.45 ÷ 0.645309 = ₹10,623.52, which rounds to ₹10,624.
Over 60 months you pay about ₹6,37,411 in total, so the interest comes to roughly ₹1,37,411 on a ₹5 lakh loan.
Where each payment goes
The EMI stays the same, but what it pays for changes every month. Interest is charged on the balance you still owe, so early payments are mostly interest and later ones are mostly principal.
| Month | Interest | Principal | Balance left |
|---|---|---|---|
| 1 | ₹4,166.67 | ₹6,456.86 | ₹4,93,543.14 |
| 2 | ₹4,112.86 | ₹6,510.66 | ₹4,87,032.48 |
| 3 | ₹4,058.60 | ₹6,564.92 | ₹4,80,467.56 |
In month 1, interest is 5,00,000 × 0.0083333 = ₹4,166.67. The rest of the EMI, ₹6,456.86, reduces the loan. Next month interest is charged on the smaller balance, so a little more goes to principal each time.
How tenure changes the cost
A longer loan lowers the EMI but raises the total interest. For the same ₹5 lakh at 10%:
| Tenure | EMI | Total interest |
|---|---|---|
| 3 years | ₹16,134 | ₹80,809 |
| 5 years | ₹10,624 | ₹1,37,411 |
| 7 years | ₹8,301 | ₹1,97,250 |
Stretching from 5 to 7 years saves about ₹2,300 a month but costs about ₹60,000 more overall. Pick the shortest tenure whose EMI you can pay comfortably.
Check it in seconds
The EMI Calculator does this sum for you. Enter the Loan amount, the Interest rate (% per year) and the Loan tenure, then tap Calculate EMI. Switch Number format to lakh to see figures the Indian and Pakistani way, open Repayment by year to see the split, or use Download schedule (CSV) to open the month-by-month table in a spreadsheet.
To compare two offers quickly, the Percentage Calculator shows how much more one total is than the other.
Why your bank’s figure can differ
- Processing fees, insurance and taxes are usually charged separately and are not part of the EMI formula.
- Some lenders count interest by the exact number of days in each month, which shifts the last digit or two.
- Flat-rate loans, common for phones and some car finance, charge interest on the full amount for the whole term. They cost much more than a reducing-balance loan at the same quoted rate.
- Floating-rate loans change when the bank’s benchmark rate changes.
Treat any calculator, including ours, as a planning tool. The loan agreement from your bank is the final word.