An EMI (equated monthly instalment) is the fixed payment you make each month until a loan is repaid. Most bank loans use the reducing-balance method: interest is charged each month only on the amount you still owe.
The formula
EMI = P x r x (1 + r)^n / ((1 + r)^n - 1)
- P is the loan amount (the principal).
- r is the monthly interest rate: the annual rate divided by 12 and by 100. A 10% yearly rate gives r = 0.10 / 12 = 0.008333.
- n is the number of monthly payments: years x 12.
Worked example
A loan of 1,000,000 at 10% a year for 10 years has P = 1,000,000, r = 0.008333 and n = 120. The formula gives an EMI of about 13,215. Over 120 months you repay about 1,585,809, of which about 585,809 is interest.
Why the first payments are mostly interest
In month 1, interest is 1,000,000 x 0.008333 = 8,333, so only about 4,882 of the 13,215 reduces the principal. As the balance falls, the interest part shrinks and the principal part grows, which is why the repayment schedule changes from month to month even though the EMI stays the same.
How tenure and rate change the cost
- A longer tenure lowers the EMI but raises the total interest.
- A higher rate raises both the EMI and the total interest.
- Prepaying part of the principal early saves the most, because it cuts the balance that interest is charged on.
Real loans can add processing fees, insurance or different rounding and day-count rules, so treat the result as an estimate and compare it with the lender's schedule.