How EMI Is Calculated: Home, Car and Personal Loans in India
An EMI (equated monthly instalment) is the fixed amount you pay each month on a loan. Banks show it on every offer, but knowing how it's calculated helps you compare offers and plan prepayments.
The formula
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
where P is the loan amount, r the monthly rate (annual rate ÷ 12 ÷ 100) and n the number of months.
Worked example
A home loan of ₹10,00,000 (₹10 lakh) at 8.5% a year. In the EMI calculator:
| Tenure | EMI | Total interest |
|---|---|---|
| 15 years | ₹9,847 | about ₹7.73 lakh |
| 20 years | ₹8,678 | about ₹10.83 lakh |
Stretching the tenure by five years lowers the EMI by about ₹1,170 a month but adds more than ₹3 lakh of interest. Over 20 years you pay back more in interest than you borrowed.
Why early EMIs are mostly interest
Interest is charged on the outstanding balance. In the first month of the 20-year example, about ₹7,083 of the ₹8,678 EMI is interest. The amortization table in the calculator shows how the split shifts year by year.
Prepayment
A part-prepayment reduces the principal directly. Banks usually let you choose to reduce the tenure (keep the EMI) or reduce the EMI (keep the tenure). Reducing tenure saves more interest. RBI rules do not allow prepayment penalties on floating-rate loans to individual borrowers; fixed-rate loans may carry charges, so check your agreement.
Before you sign
- Compare offers on total cost, including processing fees and insurance bundled into the loan.
- For floating rates, run a scenario 1–2 points higher.
- Keep the EMI within a comfortable share of take-home pay — many lenders cap total EMIs at roughly 40–50% of net income.
Reading amounts in lakh and crore? The lakh and crore converter translates them to millions. For loans outside India, the loan calculator includes extra-payment scenarios.