What is an EMI?
EMI stands for Equated Monthly Installment — the fixed amount you pay a bank every month to repay a loan. Each EMI has two parts: the principal (the amount you borrowed) and the interest on the outstanding balance.
How is EMI calculated?
The standard formula banks use is:
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)
- P = principal (loan amount)
- r = monthly interest rate (annual rate ÷ 12)
- n = number of monthly payments (tenure in months)
Because the interest portion is charged on the *remaining* balance, early payments are mostly interest, while later payments are mostly principal. This is why an amortization schedule is useful — it shows exactly how each payment splits.
A worked example
A home loan of ₹50,00,000 at 8.5% per year for 20 years (240 months):
- Monthly rate = 8.5% / 12 = 0.007083
- EMI ≈ ₹43,391
- Total paid ≈ ₹1,04,13,840
- Total interest ≈ ₹54,13,840
That is more interest than principal — typical for a long loan. Increasing your EMI or making an early prepayment dramatically reduces total interest.
How to compare loans with the EMI calculator
Use our free EMI Calculator to:
1.Enter the loan amount, interest rate, and tenure.
2.See the EMI, total interest, and total payment instantly.
3.Open the amortization schedule to view the yearly interest-versus-principal split.
4.Try a shorter tenure to see how much interest you save.
How interest rate changes affect your EMI
A floating-rate home loan resets when the bank's benchmark changes. A 1% increase on a ₹50 lakh, 20-year loan raises the EMI by roughly ₹3,000–3,300. Always budget for rate movement, not just today's rate.
Planning your investment alongside the loan
If you have a fixed surplus each month, compare prepaying the loan against investing via a SIP Calculator. Prepaying guarantees a "return" equal to your loan rate; investing may earn more over long periods but comes with market risk.
Frequently asked questions
- What is a good EMI-to-income ratio? Most lenders prefer your total EMIs to stay below 40–50% of your monthly income.
- Should I choose a longer or shorter tenure? Shorter tenures mean higher EMIs but far less total interest; longer tenures lower the EMI but cost much more over time.
- Does prepayment reduce my EMI or my tenure? It can do either. Banks usually let you reduce the tenure (keeping the EMI) or reduce the EMI (keeping the tenure).