How to Calculate EMI (Monthly Loan Payment)
An EMI (Equated Monthly Installment) is the fixed amount you pay each month to repay a loan. This guide explains the formula, walks through a real example, and shows how each payment is split between interest and principal.
What is an EMI?
Most personal loans, car loans, and home loans are repaid in equal monthly installments. Each installment covers the interest charged that month plus a portion of the amount you borrowed (the principal). Because the total stays the same, you always know exactly what goes out each month.
The EMI formula
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P is the loan amount (principal).
- r is the monthly interest rate: the annual rate divided by 12, then divided by 100. For 12% a year, r = 12 ÷ 12 ÷ 100 = 0.01.
- n is the number of monthly payments (the loan tenure in months).
Worked example
Suppose you borrow 10,000 at 12% a year for 12 months.
- Monthly EMI: 888.49
- Total repaid over 12 months: 10,661.85
- Total interest paid: 661.85
The first three months
Interest is charged on the balance you still owe, so it shrinks as you repay:
| Month | Interest | Principal | Balance left |
|---|---|---|---|
| 1 | 100.00 | 788.49 | 9,211.51 |
| 2 | 92.12 | 796.37 | 8,415.14 |
| 3 | 84.15 | 804.34 | 7,610.80 |
Each month, interest is 1% of the balance (the monthly rate), and the rest of the EMI reduces the principal. That is why the interest share falls over time.
How to run your own numbers
- Enter the loan amount you are considering.
- Enter the annual interest rate from the lender's offer.
- Enter the tenure in months (or convert years to months by multiplying by 12).
- Compare the monthly EMI and total interest across two or three offers before choosing.
Comparing loan offers
A lower EMI is not always the cheaper loan. A longer tenure lowers the monthly payment but usually raises the total interest. When comparing offers, look at total interest paid, not only the monthly figure, and check for processing fees, insurance, or prepayment charges that the EMI formula does not include.
Frequently asked questions
What does EMI stand for?
EMI stands for Equated Monthly Installment. It is the fixed amount a borrower pays every month to repay a loan, covering both interest and part of the principal.
Why is my EMI the same every month?
Standard EMI loans are designed so the total payment stays constant. Early payments include more interest and less principal, and later payments include less interest and more principal, so the total stays the same.
What happens to my EMI if I prepay part of the loan?
It depends on the lender. Some keep the EMI the same and shorten the tenure, while others keep the tenure and reduce the EMI. Ask your lender which option applies and how prepayment fees work.
Does the EMI include taxes, insurance, or fees?
No. The basic EMI covers principal and interest only. Processing fees, insurance, and property taxes (for mortgages) are usually separate costs, so check the full loan terms before comparing offers.