An EMI — Equated Monthly Instalment — is the fixed amount you repay each month on a loan. It feels simple on a statement, but the maths behind that fixed number is doing more than it looks like.
The EMI formula
EMI = P × r × (1+r)n ÷ ((1+r)n − 1)
Where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the total number of monthly instalments. This is the reducing-balance method, used by the vast majority of banks and NBFCs for home, car and personal loans.
Why the split between interest and principal changes every month
Even though the EMI amount itself never changes, what it pays for does. In the early months, most of each EMI goes toward interest because the outstanding principal is still large. As the principal shrinks month by month, more of each fixed EMI goes toward paying it down — which is why prepaying a loan early saves disproportionately more interest than prepaying near the end of the term.
Reducing balance vs. flat-rate interest
Some lenders — especially for short-term personal or consumer loans — quote a “flat rate”, calculated on the full original principal for the entire loan term, rather than on the shrinking balance. A flat rate of, say, 10% sounds similar to a reducing-balance rate of 10%, but the flat-rate loan is meaningfully more expensive, because you keep paying interest on money you’ve already repaid. Always ask a lender explicitly which method they use before comparing two loan offers by their headline rate alone.
Try it yourself
Enter your loan amount, annual interest rate and term into the free Loan EMI Calculator to see your monthly payment, total amount payable, and total interest — instantly, with no data leaving your browser.