How to calculate loan EMI: formula and example
EMI is the fixed amount you pay your lender every month on a car, home or personal loan. This guide shows the formula, a worked example, and what changes it.
What EMI means
EMI stands for equated monthly instalment. It stays the same every month, but its make-up changes: early instalments are mostly interest, and later ones are mostly repayment of the loan itself.
The EMI formula
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
P = loan amount, r = yearly rate ÷ 12 ÷ 100, n = number of months
Worked example
You borrow Rs 1,000,000 at 12% a year for 3 years. Here r = 12 ÷ 12 ÷ 100 = 0.01 and n = 36 months.
- EMI = Rs 33,214 a month.
- Total repaid over 36 months = Rs 1,195,715, so total interest is Rs 195,715.
- In the first month, Rs 10,000 of the instalment is interest (1% of Rs 1,000,000) and Rs 23,214 reduces the loan.
The same maths works in any currency. For example, $20,000 at 7% a year for 5 years gives an EMI of about $396.02.
How rate and tenure change your EMI
Monthly EMI in rupees on a Rs 1,000,000 loan:
| Yearly rate | 3 years | 5 years | 7 years |
|---|---|---|---|
| 10% | 32,267 | 21,247 | 16,601 |
| 12% | 33,214 | 22,244 | 17,653 |
| 14% | 34,178 | 23,268 | 18,740 |
| 16% | 35,157 | 24,318 | 19,862 |
A longer tenure or a lower rate lowers the monthly amount. A longer tenure also means more total interest: the same Rs 1,000,000 at 12% for 5 years has an EMI of Rs 22,244, but you pay interest for 24 more months than over 3 years.
Flat rate vs reducing balance
Some lenders quote a flat rate. Interest is then worked out on the full loan for the whole tenure: Rs 1,000,000 at 12% flat for 3 years means interest of Rs 360,000, so EMI = (1,000,000 + 360,000) ÷ 36 = Rs 37,778. The same 12% on a reducing balance gives Rs 33,214. A 12% flat rate over 3 years works out to roughly 21% on a reducing balance. Our calculator uses the reducing balance method, so ask your bank which method your quoted rate uses.
Ways to lower your EMI
- Make a bigger down payment so you borrow less.
- Ask for a lower rate, or compare offers from more than one lender.
- Choose a longer tenure if you need a smaller instalment, knowing the total interest will be higher.
- Pay extra when you can, if your lender allows early repayment without a fee.
Try your own numbers in the loan EMI calculator. It also shows total interest and a year-by-year schedule.
Frequently asked questions
How do I calculate EMI on a car loan?
Use the EMI formula with your loan amount, the yearly rate your bank quotes and the number of months. Or enter the three numbers in the loan EMI calculator and it does the maths for you.
Is EMI the same as the interest I pay?
No. Each EMI covers interest for that month plus part of the loan itself. Total interest is your EMI multiplied by the number of months, minus the amount you borrowed.
What is the difference between a flat rate and a reducing balance rate?
A flat rate charges interest on the full loan amount for the whole tenure. A reducing balance rate charges interest only on what you still owe. The same quoted percentage costs much more as a flat rate, so ask your lender which one it uses.
Does a longer tenure lower my EMI?
Yes, the monthly instalment becomes smaller, but you pay interest for more months, so the total cost goes up.
Can I save interest by paying a loan off early?
Usually yes, because interest is charged on the balance you still owe. Check your loan agreement first, as some lenders charge a fee for early repayment.