How to Calculate EMI for Home, Car and Personal Loans

EMI stands for Equated Monthly Instalment: the fixed amount you pay your lender every month until the loan ends. Knowing how it is calculated helps you compare offers and plan your budget.

The formula

EMI = P x r x (1 + r)^n / ((1 + r)^n - 1)

• P is the loan amount (principal).
• r is the monthly interest rate, which is the yearly rate divided by 12 and by 100.
• n is the number of monthly instalments.

A worked example

Loan of Rs 10,00,000 at 10 percent per year for 20 years. Here r = 10 / 12 / 100 = 0.008333 and n = 240. Plugging in gives an EMI of about Rs 9,650. Over 240 months you pay about Rs 23.2 lakh in total, so roughly Rs 13.2 lakh is interest.

Why the tenure matters so much

Shortening the tenure raises the EMI but cuts the total interest sharply. The same loan over 10 years has an EMI near Rs 13,215 but total interest of only about Rs 5.9 lakh. Use our EMI calculator to try different tenures.

Principal and interest split

In the early years most of each EMI is interest. Later most of it is principal. That is why a part-prepayment in the first years saves more than the same prepayment later.

Ways to reduce your interest cost

1. Make a larger down payment.
2. Choose the shortest tenure you can comfortably afford.
3. Prepay when you receive a bonus. Check whether your lender charges prepayment fees on your loan type.
4. Compare the rate type: floating rates move with the market, fixed rates do not.
5. Look at processing fees and other charges, not just the headline rate.

How much loan can you afford?

A common rule of thumb is that all EMIs together should stay under 40 to 50 percent of your monthly take-home income. Banks use their own checks, so use our loan eligibility calculator as a rough guide only.

Remember

Calculator results are estimates. Your lender's schedule can differ slightly because of rounding, the number of days in a month and the date your first EMI starts. Always read the sanction letter.