About the EMI calculation
An EMI is a fixed monthly payment that covers both interest and principal, sized so the loan clears exactly at the end of the term. The payment never changes, but its composition does: early instalments are mostly interest, and only near the end are you meaningfully repaying what you borrowed.
Formula
EMI = P × i × (1+i)ⁿ ÷ ((1+i)ⁿ − 1)
P = amount borrowed
i = monthly rate = annual rate ÷ 12 ÷ 100
n = number of monthsWorked example
Borrowing 1,000,000 at 8.5% over 20 years: i = 0.0070833, n = 240, (1+i)²⁴⁰ = 5.4127. EMI = 1,000,000 × 0.0070833 × 5.4127 ÷ 4.4127 = 8,678 per month, and 2,082,779 repaid in total.
Frequently asked questions
Why does a longer loan cost so much more overall?
A longer term lowers the monthly payment but leaves the balance outstanding for longer, and interest accrues on that balance every month. Stretching a 1,000,000 loan at 8.5% from 15 to 30 years cuts the payment by roughly a quarter but nearly doubles the total interest.
Does paying extra early actually help?
Substantially, because any extra payment goes entirely against principal and removes all the future interest that balance would have generated. The same overpayment made in year one saves several times what it saves in year fifteen.
Is the EMI the whole cost of a loan?
No. Lenders typically add processing fees, insurance and sometimes prepayment penalties. Compare the annual percentage rate (APR), which folds fees into a single figure, rather than comparing headline interest rates.
What happens if the interest rate is 0%?
The instalment is simply the amount borrowed divided by the number of months. This calculator handles that case rather than failing, since genuinely interest-free financing does exist.
Sources
- Standard amortisation formula for a fixed-rate instalment loan