Quick answer: EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan amount, r is the monthly interest rate (yearly rate ÷ 12 ÷ 100) and n is the number of monthly payments. For 500,000 at 12% a year over 36 months, the EMI is about 16,607.
An EMI (Equated Monthly Instalment) is the fixed amount you pay each month on a loan. Each payment covers that month’s interest plus part of the principal. Here is how it is calculated, with a full example you can check in the Loan EMI Calculator.
The EMI formula
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P — principal (the amount borrowed)
- r — monthly interest rate = yearly rate ÷ 12 ÷ 100
- n — number of monthly instalments
Worked example
Loan of 500,000 at 12% per year for 36 months:
- Monthly rate: r = 12 ÷ 12 ÷ 100 = 0.01
- (1 + r)n = 1.0136 ≈ 1.43077
- EMI = 500,000 × 0.01 × 1.43077 ÷ (1.43077 − 1) ≈ 16,607
- Total paid ≈ 16,607 × 36 ≈ 597,858
- Total interest ≈ 597,858 − 500,000 ≈ 97,858
How tenure and rate change the cost
- Longer tenure: lower monthly EMI, but more total interest.
- Shorter tenure: higher EMI, but less total interest.
- Higher rate: increases both the EMI and the total interest.
- Early in the loan a larger share of each EMI goes to interest; later, more goes to principal.
Tips before you borrow
- Compare offers using the same tenure so the numbers are comparable.
- Ask about processing fees and prepayment charges — they are not included in the EMI formula.
- Check whether the rate is fixed or floating.
- Keep EMIs at a level you can comfortably afford alongside your other commitments.
Results from any calculator are estimates; your lender’s loan agreement is the final word. This guide is general information, not financial advice.
Second worked example: a larger 5-year loan
Take a loan of 1,000,000 at 10% a year for 5 years (60 months):
- Monthly rate r = 10 ÷ 12 ÷ 100 = 0.008333
- (1 + r)60 ≈ 1.6453
- EMI = 1,000,000 × 0.008333 × 1.6453 ÷ (1.6453 − 1) ≈ 21,247
- Total paid ≈ 21,247 × 60 = 1,274,823, so the total interest is about 274,823.
You can check these numbers instantly with the Loan EMI Calculator.
Where each EMI goes: interest first, principal later
Each EMI is split into interest and principal. In month 1 of the example above, interest is 1,000,000 × 0.008333 ≈ 8,333, so only about 12,914 reduces the loan. As the balance falls, the interest part shrinks and more of each payment goes to principal. This is why prepaying early in the loan saves far more interest than prepaying near the end.
Flat rate vs reducing balance
Some offers quote a flat rate, where interest is charged on the original amount for the whole term. The EMI formula above uses a reducing balance, where interest is charged only on what you still owe. A flat rate of 10% costs noticeably more than a reducing rate of 10% for the same term, so always ask which method the lender uses before comparing offers.
Frequently asked questions
Does a longer tenure reduce the total cost?
No. A longer tenure lowers the monthly EMI but increases total interest. For 500,000 at 12%, a 36-month loan costs about 97,858 in interest, while a 60-month loan costs about 167,333.
Is the EMI the same every month?
For a fixed-rate loan, yes. For a floating-rate loan the lender may change the EMI or the tenure when the rate changes.
Are processing fees part of the EMI?
Usually not. Fees, insurance and taxes are charged separately, so add them when comparing the true cost of two loans.
Can I use this formula for car, home and personal loans?
Yes. The same formula applies to any loan repaid in equal monthly instalments on a reducing balance.
Related: Percentage Calculator, Discount Calculator, our guide to calculating percentages, and all free calculators.
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