Key Takeaways
- EMI depends on principal, monthly interest rate, and tenure.
- Early EMIs are mostly interest; later ones are mostly principal.
- A longer tenure lowers the EMI but raises total interest.
- The amortisation schedule shows this split month by month.
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The EMI formula
Equated Monthly Instalment is calculated as:
EMI = P × r × (1 + r)n / [ (1 + r)n − 1 ]
where P is the principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the tenure in months.
How each EMI is split
Although the EMI stays the same each month, its composition changes. Early in the loan the outstanding balance is high, so most of the EMI goes toward interest. As the balance falls, more of each EMI repays principal. The EMI calculator shows this in a full amortisation schedule.
Illustration: ₹10 lakh at 8.5% for 20 years
Monthly rate r = 8.5 ÷ 12 ÷ 100 = 0.007083; n = 240 months.
EMI = 10,00,000 × 0.007083 × (1.007083)240 ÷ [(1.007083)240 − 1] ≈ ₹8,678.
Over 240 months you repay about ₹20.83 lakh, of which ₹10.83 lakh is interest — more than the amount borrowed. In month 1 the interest portion is ₹10,00,000 × 0.007083 ≈ ₹7,083 and only ₹1,595 reduces the principal. By the final year the split has reversed and almost the whole EMI is principal. This front-loading is why prepaying early saves far more interest than prepaying late.
Tenure changes the total cost more than the EMI suggests
| Tenure | EMI (approx.) | Total interest (approx.) |
|---|---|---|
| 10 years | ₹12,399 | ₹4.88 lakh |
| 15 years | ₹9,847 | ₹7.72 lakh |
| 20 years | ₹8,678 | ₹10.83 lakh |
Stretching from 10 to 20 years cuts the EMI by about 30% but more than doubles the interest paid. The right tenure is the shortest one whose EMI you can carry comfortably — the EMI calculator lets you compare tenures side by side, and the Loan Prepayment calculator shows what extra payments save.
What the EMI does not include
Processing fees (which attract GST), stamp duty, mandatory insurance, late-payment charges and any rate changes on a floating loan sit outside the EMI formula. Lenders disclose these in the key-fact statement the RBI requires; read it before comparing offers on EMI alone.
Sources
We reference primary and official sources. Rate- and rule-dependent details must be verified against the latest official information.
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Related Guides
Fixed vs Floating Interest Rates
A fixed rate keeps your EMI constant regardless of market movements; a floating rate moves with a benchmark, so your EMI or tenure can change over time.
loansHow Loan Interest Works
Most loans charge interest on the reducing outstanding balance, so interest falls as you repay. A flat rate charges on the original amount throughout and is effectively costlier.
loansHow Loan Prepayment Works
Prepaying a loan reduces the outstanding principal, which lowers future interest. You can usually choose to shorten the tenure or reduce the EMI — shortening tenure saves the most interest.