How to Calculate EMI: Formula, Example and Tips
Short answer
EMI (equated monthly instalment) = 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 months. A loan of 5,00,000 at 9% for 5 years has an EMI of about 10,379.
An EMI is the fixed amount you pay every month to repay a loan with interest. Banks in India and many other countries use the term for home loans, car loans, personal loans and even phone purchases on instalments. The same formula is used for mortgages in North America, where it is simply called the monthly payment. Once you understand it, you can compare loan offers properly instead of relying on the number a salesperson quotes.
The EMI formula explained
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P – principal, the amount you borrow.
- r – the monthly interest rate as a decimal. Divide the yearly rate by 12 and then by 100. A 9% yearly rate becomes 0.09 ÷ 12 = 0.0075.
- n – the tenure in months. A 5-year loan has 60 instalments.
This is a reducing-balance formula: each month, interest is charged only on the amount you still owe. That is the standard method for bank loans. Some lenders, especially for small consumer loans, quote a “flat” rate instead, which charges interest on the original amount for the whole term and costs much more. Always ask which method is used.
Worked example: calculating EMI by hand
Let us calculate the EMI on a personal loan of 5,00,000 (five lakh) at 9% a year for 5 years.
- Monthly rate: r = 9 ÷ 12 ÷ 100 = 0.0075.
- Number of months: n = 5 × 12 = 60.
- Growth factor: (1 + 0.0075)60 = 1.007560 ≈ 1.5657.
- Top of the fraction: 5,00,000 × 0.0075 × 1.5657 ≈ 5,871.3.
- Bottom of the fraction: 1.5657 − 1 = 0.5657.
- Divide: 5,871.3 ÷ 0.5657 ≈ 10,379.
So the EMI is about 10,379 a month. Over 60 months you pay about 6,22,751, which means the total interest is roughly 1,22,751. Our loan EMI calculator gives the same answer instantly and shows a month-by-month breakdown.
Where your EMI goes each month
The EMI stays the same, but its make-up changes. In the first month, interest is charged on the full 5,00,000: 5,00,000 × 0.0075 = 3,750. The rest of the EMI, about 6,629, reduces the loan. Next month the balance is smaller, so the interest part falls and the principal part grows. By the final year almost the whole EMI goes towards principal. This schedule is called amortization, and it explains why prepaying early in the loan saves the most interest.
How tenure and rate change the EMI
Using the same 5,00,000 loan at 9%:
| Tenure | EMI (approx.) | Total interest (approx.) |
|---|---|---|
| 3 years | 15,900 | 72,395 |
| 5 years | 10,379 | 1,22,751 |
A longer tenure lowers the monthly payment but increases the total interest you pay. A shorter tenure does the opposite. The right choice is the shortest tenure whose EMI still fits comfortably in your budget, with room left for emergencies.
The interest rate has a similar effect. Even half a percentage point matters on large, long loans such as home loans. Before accepting an offer, try the numbers at a rate one point higher to check that the EMI would still be affordable if a floating rate rises. To see how much a rate change shifts your EMI in percentage terms, compare the two results with the percentage calculator. If you are unsure how percentage points differ from percentages, see how to calculate percentage increase.
Calculating EMI in Excel or Google Sheets
Spreadsheets have a built-in function: =PMT(9%/12, 60, -500000) returns about 10,379. The first argument is the monthly rate, the second is the number of months and the third is the loan amount, entered as a negative number because it is money you receive.
A second example in dollars
The formula works in any currency. A car loan of $20,000 at 7% for 4 years gives r = 0.07 ÷ 12 ≈ 0.005833 and n = 48. The monthly payment is about $478.92, and total interest over the loan is about $2,988. For home purchases, where property tax and insurance are often added to the payment, use the mortgage calculator and read our step-by-step mortgage payment guide.
Tips to lower your EMI or total interest
- Make a bigger down payment. Borrowing less reduces both the EMI and the interest.
- Compare the annual percentage rate. Processing fees and insurance add to the true cost; compare offers on the total amount repaid.
- Prepay when you can. Extra payments early in the loan cut the balance on which interest is charged. Check whether your lender charges a prepayment penalty.
- Avoid stretching the tenure. A lower EMI over a longer period usually means paying much more overall.
- Watch flat-rate offers. A “flat 9%” loan can cost far more than a 9% reducing-balance loan.
If you are planning a home purchase, our guide on how much house you can afford shows how lenders compare your EMI with your income.
Frequently asked questions
What is the formula to calculate EMI?
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of monthly instalments.
What is the EMI for 5 lakh at 9% for 5 years?
About 10,379 per month. Over 60 months you repay about 6,22,751, so the total interest is roughly 1,22,751.
Is a longer loan tenure better?
A longer tenure lowers the EMI but increases the total interest. Choose the shortest tenure whose EMI you can comfortably afford.
Does prepaying a loan reduce the EMI?
It depends on the lender. Some reduce the EMI and keep the tenure, others keep the EMI and shorten the tenure. Shortening the tenure usually saves more interest. Ask your lender which option they offer and whether there are charges.
What is the difference between flat rate and reducing balance EMI?
A flat rate charges interest on the original loan amount for the whole tenure, while a reducing balance rate charges interest only on what you still owe. For the same quoted rate, a flat-rate loan costs considerably more.