Finance
How to calculate EMI
An EMI is a fixed monthly payment that covers interest on the outstanding balance plus a slice of principal. The instalment stays the same; the split inside it changes every month.
Here is the standard reducing-balance formula, a full worked example, and what tenure and prepayment actually do to your total cost.
The reducing-balance formula
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
where r = Annual rate ÷ 12 ÷ 100, n = tenure in months
Worked example. P = ₹10,00,000, annual rate 10.5%, tenure 60 months. Monthly rate r = 10.5 ÷ 12 ÷ 100 = 0.00875. Applying the formula gives an EMI of about ₹21,494. Total repayment is 60 × ₹21,494 ≈ ₹12,89,640, so interest is roughly ₹2,89,640.
The EMI calculator does this instantly and shows the interest and total repayment alongside the instalment.
How the interest and principal split changes
| Month | EMI | Interest portion | Principal portion |
|---|---|---|---|
| 1 | ₹21,494 | ₹8,750 | ₹12,744 |
| 12 | ₹21,494 | ₹7,510 | ₹13,984 |
| 30 | ₹21,494 | ₹5,000 | ₹16,494 |
| 60 | ₹21,494 | ₹186 | ₹21,308 |
Figures are rounded. The pattern is what matters: early instalments repay little principal, which is why prepaying in the first years saves the most interest.
What tenure does to total cost
| Tenure | EMI | Total interest |
|---|---|---|
| 36 months | ≈ ₹32,504 | ≈ ₹1,70,000 |
| 60 months | ≈ ₹21,494 | ≈ ₹2,90,000 |
| 84 months | ≈ ₹16,912 | ≈ ₹4,21,000 |
A longer tenure buys monthly breathing room at a real cost. Pick the shortest tenure your monthly cash flow can absorb comfortably.
Before you borrow
- Check what a lender is likely to sanction with the loan eligibility calculator.
- For business assets, compare the expected return against the interest cost using the ROI calculator.
- Ask the lender about processing fees, insurance and prepayment charges — these change the effective cost beyond the quoted rate.
Actual EMI, interest and eligibility depend on your lender's terms, calculation method and credit assessment. Treat these figures as planning estimates.