How EMI Is Actually Calculated
This calculator uses the standard reducing-balance amortization formula that Indian banks and
NBFCs use for home, personal, car, and most other term loans:
EMI = [P x r x (1+r)^n] / [(1+r)^n - 1], where P is the loan principal, r is the monthly
interest rate (annual rate divided by 100 and by 12), and n is the number of monthly
installments. Each month, part of your EMI pays down interest on the remaining balance and the
rest reduces the principal — the interest portion is largest in the early months (when the
outstanding balance is highest) and shrinks steadily as the loan matures, even though the EMI
amount itself stays fixed for the whole tenure.
A Worked Example
A Rs. 40,00,000 home loan at 8.5% annual interest over a 20-year (240-month) tenure works out
to a monthly EMI of about Rs. 34,713. Over the full tenure, total interest
paid comes to roughly Rs. 43.3 lakh — more than the principal itself — making
total repayment around Rs. 83.3 lakh on a Rs. 40 lakh loan. This is normal for
long-tenure loans: the longer the repayment period, the larger the share of your total payment
that goes to interest rather than principal.
Why 0.25% in Interest Rate Matters More Than It Sounds
Small rate differences compound significantly on large, long-tenure loans. Taking the same
Rs. 40,00,000/20-year loan at 8.50% versus 8.75% — a difference of just a quarter of a
percentage point — the EMI rises from about Rs. 34,713 to about Rs. 35,348 (roughly Rs. 635
more a month), but total interest paid over the full tenure rises by about
Rs. 1,52,500. This is exactly the kind of gap that's easy to miss when
comparing lender offer letters side by side, but shows up immediately in the "Compare up to 4
EMI Options" table above.
Tenure vs. EMI Trade-off
Shortening tenure raises your monthly EMI but cuts total interest paid, because you're
borrowing the same principal for less time. On the same Rs. 40,00,000/8.5% loan, dropping
tenure from 20 years to 15 years raises the EMI from about Rs. 34,713 to about
Rs. 39,390 a month — roughly Rs. 4,700 more — but total interest paid drops by
about Rs. 12.4 lakh over the life of the loan. Whether that trade-off makes
sense depends entirely on whether the higher EMI still fits comfortably within your monthly
budget; use the loan eligibility calculator linked in the sidebar if you're unsure how much
EMI you can safely commit to.
EMI Calculator – Frequently Asked Questions
What is EMI?
EMI (Equated Monthly Installment) is the fixed amount you pay every month to repay a loan,
including both principal and interest.
How is EMI calculated?
EMI is calculated using the loan amount, interest rate, and loan tenure using a standard
amortization formula.
Does prepayment reduce EMI?
Yes, making a prepayment reduces the outstanding principal and can lower total interest
or reduce loan tenure.
Why does most of my early EMI go toward interest instead of principal?
Interest each month is calculated on the outstanding loan balance, which is at its highest
right at the start of the loan. As you pay down principal over time, the balance shrinks, so
the interest portion of each fixed EMI shrinks too, and a growing share goes toward principal
instead. This is normal amortization behavior, not a sign of an unfavorable loan.
How many loans can I compare at once?
Up to four. Use the "+ Add another loan" button to add comparison rows (up to a maximum of
four), enter different amounts, rates, or tenures in each, and click "Compare Loans" to see
a side-by-side table with EMI, IRR, total interest, and total payment for every row, along
with the best option highlighted based on whichever criterion you select.
Is the EMI shown here exactly what my bank will charge?
This is a close estimate based on standard reducing-balance amortization, but actual bank EMI
can differ slightly due to processing fees, insurance add-ons, GST on charges, rounding
conventions, or a different day-count method used by some lenders. Treat this as a planning
estimate and confirm the exact figure in your loan sanction letter.