How EMI Is Calculated: The Formula, Examples & Tips to Save on Interest

An Equated Monthly Instalment (EMI) is the fixed amount you pay a lender every month until your loan is fully repaid. Each EMI has two parts: interest on the outstanding balance and a portion of the principal.

The EMI formula

Lenders use the reducing-balance method:

EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)

• P = principal loan amount
• r = monthly interest rate (annual rate ÷ 12 ÷ 100)
• n = number of monthly instalments (tenure in months)

Worked example

Suppose you borrow ₹10,00,000 at 9% per annum for 5 years (60 months). The monthly rate r = 9 / 12 / 100 = 0.0075. Plugging into the formula gives an EMI of about ₹20,758. Over 60 months you repay roughly ₹12.45 lakh, meaning about ₹2.45 lakh is interest.

How to pay less interest

1. Choose a shorter tenure where the EMI is affordable — total interest drops sharply.
2. Make part-prepayments when you have surplus cash; this reduces the principal directly.
3. Compare interest rates across lenders before signing.
4. Improve your credit score to qualify for lower rates.

Try it yourself

Use our free EMI Calculator to see your monthly instalment and total interest instantly, then compare scenarios with the Loan Interest Calculator.

This article is educational and not personalized financial advice. Verify figures with your lender before making decisions.