EMI Calculation Explained: How Loan Repayment Works

What is EMI?

EMI (Equated Monthly Installment) is the fixed amount you pay each month to repay a loan. It includes both the principal amount and the interest, spread over the loan tenure.

The EMI Formula

EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

Where:
P = Loan amount (principal)
r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
n = Number of monthly installments (tenure in months)

Example

For a ₹10,00,000 loan at 10% annual interest for 5 years (60 months):

r = 10 ÷ 12 ÷ 100 = 0.00833
n = 60
EMI = 10,00,000 × 0.00833 × (1.00833)⁶⁰ ÷ ((1.00833)⁶⁰ − 1) = ₹21,247

Total interest paid over 5 years = ₹21,247 × 60 − ₹10,00,000 = ₹2,74,820

Tips to Reduce Your EMI Burden

• Increase down payment: Larger down payment = lower loan amount
• Choose longer tenure: Lower EMI but more total interest
• Prepay when possible: Extra payments save significant interest
• Improve credit score: Better score = lower interest rate

Related Calculators

• EMI Calculator — Calculate your monthly payment
• Loan Calculator — Full loan analysis
• Loan Prepayment Calculator — See prepayment savings
• Loan Comparison Calculator — Compare loan offers