How EMI is calculated
EMI stands for equated monthly instalment: the same amount paid every month until the loan is repaid. Banks in Pakistan and India use the reducing-balance formula:
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
Here P is the loan amount, r is the monthly interest rate (the yearly rate ÷ 12 ÷ 100) and n is the number of months.
Worked example: for 1,000,000 at 12% a year for 12 months, r = 12 ÷ 12 ÷ 100 = 0.01 and n = 12, which gives an EMI of 88,848.79. In the first month, interest is 1% of 1,000,000 = 10,000, so 78,848.79 of your payment reduces the loan. Each month the balance is smaller, so less of the EMI goes to interest and more goes to repaying the loan. Open “Show month by month” to watch this happen.
Flat rate vs reducing rate
Some lenders and dealers quote a flat rate, where interest is charged on the full loan for the whole tenure, even as you pay it back. A flat rate costs much more than the same reducing rate. At a 12% flat rate, 1,000,000 for 12 months costs 120,000 in interest, an instalment of 93,333.33. At a 12% reducing rate it costs 66,185.46, an EMI of 88,848.79. This calculator uses the reducing rate, so if your offer says “flat”, ask the lender for the reducing-rate equivalent before you compare.
Longer tenure: lower EMI, more interest
Stretching a loan lowers each payment but raises the total cost. For 2,500,000 at 9.5%:
| Tenure | Monthly EMI | Total interest |
|---|---|---|
| 10 years | 32,349.39 | 1,381,926.73 |
| 15 years | 26,105.62 | 2,199,011.07 |
| 20 years | 23,303.28 | 3,092,787.13 |
Moving from 10 to 20 years cuts the EMI by about 9,000 a month but more than doubles the interest. Choose the shortest tenure whose EMI you can comfortably afford.
What the result does not include
Many home and car loans have a floating rate linked to a benchmark such as KIBOR in Pakistan or the repo rate in India. When the benchmark changes, your bank changes either the EMI or the tenure, so this calculation holds only while the rate stays the same. The EMI here also leaves out processing fees, insurance, taxes and other charges. Use it to plan and compare offers, then confirm the final figure with your lender.
Choose “10,00,000 (lakh)” under Number format if you prefer lakh and crore grouping. Everything is calculated in your browser.