The EMI formula
Where:
- P = Principal — the loan amount you're borrowing
- r = Monthly interest rate — your annual rate ÷ 12 ÷ 100 (converting a yearly percentage into a monthly decimal)
- n = Total number of monthly instalments — loan tenure in years × 12
A worked example
Say you borrow $20,000 at 9% annual interest over 5 years.
- P = 20,000
- r = 9 ÷ 12 ÷ 100 = 0.0075
- n = 5 × 12 = 60 months
Plugging into the formula gives an EMI of approximately $415/month. Over 60 months that's about $24,900 total — meaning roughly $4,900 of that is interest.
Skip the maths — get your exact EMI instantly:
Open the Loan EMI CalculatorWhy EMI stays the same but the split changes
Every EMI payment is actually two parts blended into one number: interest and principal repayment. In the early months, most of your EMI goes toward interest, because the outstanding balance is still high. As the balance shrinks, more of each later EMI goes toward the principal instead — even though the total monthly payment never changes. This is called the reducing balance method, and it's how nearly all standard EMI loans work.
Flat rate vs. reducing balance — don't get caught out
Some lenders (especially for smaller personal or consumer loans) advertise a flat interest rate instead. This charges interest on the full original loan amount for the entire tenure, rather than on the shrinking balance. A flat rate that looks lower than a reducing-balance rate can actually cost significantly more overall — always ask which method a loan uses before comparing rates.
Ways to lower your EMI or total interest
- Choose a longer tenure to reduce the monthly EMI — but note this increases total interest paid over the loan's life.
- Make a larger down payment to shrink the principal you're borrowing against.
- Prepay when you can. Even small extra payments toward principal (where allowed without penalty) reduce the balance interest is calculated on, saving money over the remaining tenure.
- Compare rates before committing — even a 1% difference in annual rate meaningfully changes total interest on a multi-year loan.