How EMI Is Calculated: Formula and Loan Repayment Example
A loan’s monthly instalment combines interest and principal. A calculator can show that split, provided its assumptions match the loan you are comparing.
A fictional ₹1,00,000 loan at a fixed annual rate of 12%, repaid over 12 months on a monthly reducing balance, produces an EMI of about ₹8,884.88. The model’s total repayment is ₹1,06,618.55 and total interest ₹6,618.55, before fees. These are examples, not current lender offers.
What goes into an EMI calculation?
Principal is the amount borrowed. The interest rate sets the model’s periodic borrowing cost. Tenure is the number of repayment periods. In a standard equal-instalment model, all three inputs determine the payment required to reduce the balance to zero.
The calculation here assumes full disbursement at the start, equal payments at the end of each month, a fixed rate and monthly compounding. It excludes processing fees, insurance, taxes, late-payment charges, partial disbursements and prepayments. Your lender may use different rounding or daily-interest conventions.
The standard reducing-balance formula
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
P is principal, r is the annual percentage divided by 1,200, and n is the number of months. With a 12% annual rate, the monthly model rate is 1%. If the rate is zero, the payment is P ÷ n.
For the example, first-month interest is ₹1,000. Of the payment of approximately ₹8,884.88, about ₹7,884.88 reduces principal, leaving around ₹92,115.12. Interest in the next month is calculated on that lower balance. The amount of principal repaid generally increases as interest falls within this fixed-rate model.
Displayed monthly payments are rounded to paise. Multiplying that rounded display by the tenure can differ by a few paise from a total calculated using the unrounded payment. A lender’s final payment can also include a rounding adjustment.
Compare the monthly burden and total interest together
This comparison keeps the fictional ₹1,00,000 principal and 12% annual rate unchanged. A longer tenure lowers the model’s monthly payment but increases its total interest.
| Tenure | Approximate EMI | Modelled total interest |
|---|---|---|
| 12 months | ₹8,884.88 | ₹6,618.55 |
| 24 months | ₹4,707.35 | ₹12,976.33 |
| 36 months | ₹3,321.43 | ₹19,571.52 |
What should you check against the actual loan?
Match the principal, repayment frequency, rate type, remaining tenure and disbursement assumptions. A floating-rate loan can change after a reset; an estimate made at one unchanged rate will not model an unknown future reset. Ask the lender how rate changes affect the instalment or repayment period.
Compare the complete repayment terms and charges, not just the smallest monthly figure. This guide does not determine loan eligibility, affordability, current bank pricing, legal entitlements or tax deductions.