Every EMI you've ever paid — on a home loan, a car loan, a personal loan — comes from the same formula. Once you understand it, the number on your loan statement stops being a mystery the bank generated and becomes something you can verify yourself in under a minute.
The formula
EMI = P × r × (1 + r)ⁿ / ((1 + r)ⁿ − 1)
Where P is the principal (the amount you borrow), r is the monthly interest rate (your annual rate divided by 12, then divided by 100 to convert from a percentage), and n is the total number of monthly installments (loan tenure in years × 12).
A worked example
Say you borrow ₹10,00,000 at 9% annual interest for 5 years.
- P = 10,00,000
- r = 9 / 12 / 100 = 0.0075
- n = 5 × 12 = 60
- EMI = 10,00,000 × 0.0075 × (1.0075)⁶⁰ / ((1.0075)⁶⁰ − 1) ≈ ₹20,758
Why your EMI stays flat but the interest portion doesn't
The EMI amount is fixed for the life of the loan, but what it's made of changes every month. Early on, most of each payment goes toward interest, because interest is calculated on the outstanding principal — which is still close to the full loan amount. As you keep paying, the principal shrinks, so the interest portion of each EMI shrinks with it, and a larger share goes toward paying down principal. This is why prepaying a loan early saves disproportionately more interest than prepaying the same amount later in the tenure.
What actually moves your EMI
Three levers, and they don't move your EMI equally:
- Principal — a linear relationship. Borrow 20% more, pay roughly 20% more EMI.
- Interest rate — the most sensitive lever, because r is compounded n times in the formula. A 1-percentage-point rate difference on a 20-year home loan changes the EMI far more than the same 1-point difference on a 2-year personal loan.
- Tenure — a longer tenure lowers your EMI, but increases total interest paid over the life of the loan, sometimes dramatically. Doubling your tenure rarely halves your EMI — it usually reduces it by less than that, while total interest paid goes up.
Try it yourself
Rather than trust a bank's quoted figure blindly, plug your own principal, rate, and tenure into the formula — or use our EMI Calculator, which also breaks down the full month-by-month interest-vs-principal split so you can see exactly where your money goes over the life of the loan.