How Loan EMI Is Calculated: Formula, Example & Tips

An EMI, or equated monthly instalment, is the fixed amount you pay each month to clear a loan. Every EMI covers that month's interest and pays off part of what you borrowed. Knowing how it is worked out helps you compare offers and plan repayments.

The formula

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

• P is the amount borrowed.
• r is the monthly interest rate: the yearly rate divided by 12, as a decimal.
• n is the number of monthly payments.

Worked example

A personal loan of 300,000 at 12% a year for 3 years:

1. Monthly rate r = 12% ÷ 12 = 1% = 0.01.
2. Number of payments n = 3 × 12 = 36.
3. (1.01)³⁶ ≈ 1.4308.
4. EMI = 300,000 × 0.01 × 1.4308 ÷ 0.4308 ≈ 9,964.

Over 36 months you repay about 358,715, so the interest costs about 58,715.

How each payment is split

In month 1, interest is 1% of 300,000, which is 3,000. The other 6,964 of the EMI reduces the balance. In month 2, interest is charged on the smaller balance, so a little more goes to principal. By the last few months, almost the whole EMI is paying off the loan itself.

Longer term, smaller EMI, bigger cost

Stretching the same loan from 3 to 5 years cuts the EMI by about a third but adds over 41,000 in interest.

Ways to pay less interest

• Choose the shortest term whose EMI you can comfortably afford.
• Make part-prepayments early, when most of the EMI is still going to interest.
• Compare the rate and the processing fees, not just the EMI.

Tip Examples here are for learning. Your lender's figures may differ slightly because of fees, rounding or the exact start date.

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Common questions