Last updated: October 2026 Β· 3 min read
An EMI (Equated Monthly Instalment) is the fixed amount you pay every month to repay a loan. Each EMI has two parts: interest and principal. Knowing how it is calculated helps you choose the right tenure and save money.
The EMI formula
EMI = P Γ r Γ (1 + r)n Γ· [(1 + r)n β 1]where P = loan amount, r = monthly interest rate (annual rate Γ· 12 Γ· 100) and n = number of monthly instalments.
Worked example
Loan of βΉ10 lakh at 9% a year for 10 years:
- r = 9 Γ· 12 Γ· 100 = 0.0075
- n = 120 months
- EMI β βΉ12,668
- Total paid β βΉ15.2 lakh, so total interest β βΉ5.2 lakh
How rate and tenure change your EMI (βΉ10 lakh loan)
| Rate | 10 years EMI | Total interest | 20 years EMI | Total interest |
|---|---|---|---|---|
| 8% | βΉ12,133 | βΉ4.56 lakh | βΉ8,364 | βΉ10.07 lakh |
| 9% | βΉ12,668 | βΉ5.20 lakh | βΉ8,997 | βΉ11.59 lakh |
| 10% | βΉ13,215 | βΉ5.86 lakh | βΉ9,650 | βΉ13.16 lakh |
A longer tenure lowers your EMI but more than doubles the total interest.
Amortisation: why early EMIs are mostly interest
In the first years, interest is calculated on a large outstanding balance, so most of the EMI goes towards interest. As the balance falls, more of each EMI goes towards principal. Your lender’s amortisation schedule shows this month by month.
Ways to reduce EMI or total interest
- Improve your credit score before applying to get a lower rate.
- Make a bigger down payment.
- Prepay part of the loan whenever possible.
- Choose a shorter tenure if you can afford the EMI.
- Consider a balance transfer to a lender with a lower rate.
- Increase your EMI by 5-10% each year as your income grows.
Frequently asked questions
Is EMI calculated on reducing balance?
Yes, for most home, car and personal loans from banks. Some lenders quote flat rates, which are more expensive than they look.
Does a repo rate hike increase my EMI?
For floating-rate loans linked to the repo rate, the rate rises; lenders usually extend tenure or increase EMI.
Can I calculate EMI in Excel?
Yes: use =PMT(rate/12, months, -loan). For the example above: =PMT(9%/12,120,-1000000).
Keep exploring
- Home loan guide
- Power of compounding
- Personal loan vs gold loan
- More Loans & Credit articles on Tiwaripedia
This article is for general information, not financial, tax or legal advice. Rates, limits and rules change; always confirm on the official website or with a qualified advisor before you act. Spotted something that needs updating? Let us know.
