An EMI (Equated Monthly Instalment) is the fixed amount you pay each month to repay a loan. Each EMI has two parts: interest on the outstanding balance and principal, the part that actually reduces what you owe.
The formula
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
- P is the loan amount (principal)
- r is the monthly interest rate (annual rate ÷ 12 ÷ 100)
- n is the number of monthly instalments
You do not need to calculate it by hand. Our EMI calculator does it for you, but knowing what goes in helps you negotiate.
A worked example
Take a loan of ₹5,00,000 at 10% a year for 5 years (60 months):
| Amount | |
|---|---|
| Monthly EMI | ₹10,624 |
| Total interest | ₹1,37,411 |
| Total repaid | ₹6,37,411 |
Why tenure matters so much
Same loan, same rate, but 7 years instead of 5:
| Tenure | EMI | Total interest |
|---|---|---|
| 5 years | ₹10,624 | ₹1,37,411 |
| 7 years | ₹8,301 | ₹1,97,250 |
The EMI falls by about ₹2,300, but you pay about ₹60,000 more in interest.
Why rate matters too
At 11% instead of 10% for 5 years, the EMI rises to ₹10,871 and total interest to ₹1,52,273, about ₹15,000 more for a one-point difference.
Early EMIs are mostly interest
Because interest is charged on the outstanding balance, your early EMIs are mostly interest and your later EMIs are mostly principal. This is why prepaying early in the loan saves the most money.
Affordability rule of thumb
Keep your total EMIs to a level you can pay even in a tight month. Many lenders look at your fixed obligations as a share of income; staying well below 40% leaves room for emergencies.
Key takeaways
EMIs depend on three things: amount, rate and tenure. A longer tenure lowers the EMI but raises the total cost. Compare total interest, not just the monthly figure.