How EMI is Calculated
Updated 2026-10-29
Quick answer: EMI = P × r × (1+r)^n / ((1+r)^n − 1), where P is principal, r is the monthly rate (annual ÷ 12 ÷ 100) and n is the number of months. The EMI stays fixed, but the interest part shrinks and the principal part grows each month.
Worked example
₹10 lakh at 9% for 5 years: r = 0.0075, n = 60. EMI = 10,00,000 × 0.0075 × 1.0075^60 / (1.0075^60 − 1) ≈ ₹20,758. Total paid ≈ ₹12.45 lakh, so interest ≈ ₹2.45 lakh.
Why early EMIs are mostly interest
Interest is charged on the outstanding balance, which is highest at the start. That's why prepaying early saves the most interest.
FAQs
Is EMI calculated on a flat or reducing balance?
Bank loans in India use reducing balance. Some lenders quote flat rates, which look lower but cost more.