How loan EMI is calculated
By the FreeAllTool team · Updated October 28, 2026
An EMI, or equated monthly instalment, is the fixed amount you pay every month to repay a loan. Each payment covers part of the interest and part of the original loan amount. Understanding how it is calculated helps you compare loans and choose a sensible tenure.
The formula
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
- P is the loan amount.
- r is the monthly interest rate: the yearly rate divided by 12, then by 100.
- n is the number of monthly instalments.
A worked example
Suppose you borrow ₹5,00,000 at 9% per year for 5 years.
- r = 9 ÷ 12 ÷ 100 = 0.0075
- n = 5 × 12 = 60
- (1 + r)n = 1.007560 ≈ 1.5657
- EMI ≈ 5,00,000 × 0.0075 × 1.5657 ÷ 0.5657 ≈ ₹10,379
Over 60 months you pay about ₹6,22,740, which means roughly ₹1,22,740 in interest.
Where your money goes
In the early months, a large share of each EMI goes to interest because the outstanding loan is high. As the balance falls, more of each EMI repays the principal. This pattern is shown in the loan’s amortisation schedule, which your lender can provide.
Longer tenure: lower EMI, more interest
Stretching a loan over more years reduces the monthly EMI, but you pay interest for longer, so the total cost rises. A shorter tenure means a higher EMI but less total interest. Choose an EMI you can comfortably afford while keeping the tenure as short as practical.
Prepayment
Paying extra towards the principal, when your loan allows it, reduces the outstanding balance and therefore future interest. Check for any prepayment charges in your loan terms first.
Compare the full cost
When comparing loans, look at the interest rate, processing fees and other charges together, not only the EMI. This article is general information, not financial advice; check exact figures with your lender.