Tokkucal
How EMI Is Calculated: Formula, Step-by-Step Example and Amortization
Last updated: 03 September 2026
EMI (Equated Monthly Instalment) is the fixed amount you repay every month on a loan, combining both principal and interest. Banks and NBFCs in India use the same standard reducing-balance formula to work it out — here's exactly how it's calculated, step by step.
The EMI Formula
r = Annual Interest Rate ÷ 12 ÷ 100
EMI = P × r × (1 + r)^N ÷ [(1 + r)^N − 1]
- P — the loan (principal) amount
- r — the monthly interest rate, as a decimal
- N — the total number of monthly instalments (tenure in months)
If the interest rate is 0%, the formula above breaks down to division by zero — in that special case, EMI is simply the loan amount divided by the number of months.
Worked Example
A loan of ₹5,00,000 at 8.5% annual interest for 5 years (60 months):
r = 8.5 ÷ 12 ÷ 100 = 0.007083
(1 + r)^60 ≈ 1.5273
EMI = 500000 × 0.007083 × 1.5273 ÷ (1.5273 − 1) ≈ ₹10,258.27
Over the full 5-year term:
- Total amount paid: ₹10,258.27 × 60 = ₹6,15,496.20
- Total interest paid: ₹6,15,496.20 − ₹5,00,000 = ₹1,15,496.20
Why the Interest-to-Principal Split Changes Every Year
The EMI amount stays fixed for the whole loan, but what it's made of shifts every month. Early on, the outstanding balance is high, so more of each EMI goes towards interest. As the balance shrinks, more of each EMI goes towards principal. For the ₹5,00,000 example above, the year-by-year split looks like this:
| Year | Principal Paid | Interest Paid | Remaining Balance |
|---|---|---|---|
| 1 | ₹83,814.59 | ₹39,284.65 | ₹4,16,185.41 |
| 2 | ₹91,223.03 | ₹31,876.21 | ₹3,24,962.38 |
| 3 | ₹99,286.32 | ₹23,812.92 | ₹2,25,676.06 |
| 4 | ₹1,08,062.33 | ₹15,036.91 | ₹1,17,613.73 |
| 5 | ₹1,17,614.05 | ₹5,485.19 | ₹0.00 |
Interest paid drops from ₹39,285 in year 1 to just ₹5,485 in year 5, even though the EMI itself never changes.
What Affects Your EMI
- Loan amount — a larger principal means a proportionally larger EMI, all else equal.
- Interest rate — even a small rate difference compounds significantly over a long tenure.
- Tenure — a longer tenure lowers the monthly EMI, but increases the total interest paid over the life of the loan.
- Prepayment — paying down extra principal early reduces the balance interest is calculated on for every remaining month, which is why early prepayment saves more than late prepayment.
Frequently Asked Questions
Does my EMI change during the loan tenure?
For a standard fixed-rate loan, no — the EMI amount stays the same every month. Only the split between principal and interest within that fixed EMI changes.
Why do banks front-load interest in the early instalments?
It isn't deliberate front-loading — interest is simply calculated on the outstanding balance each month, and the balance is naturally highest at the start of the loan.
Is this formula the same for home, car and personal loans?
Yes, the reducing-balance EMI formula is standard across loan types in India. What differs is the interest rate and typical tenure offered for each loan category.
Does prepaying my loan actually save money?
Yes. Prepaying principal reduces the balance that future interest is calculated on, so extra payments made earlier in the loan save more total interest than the same amount paid later.
Want your own numbers calculated?
Enter your loan amount, rate and tenure to get your EMI and full yearly breakdown.