How EMI Is Calculated: Formula, Example and Breakup

Banks in India calculate EMI with the reducing-balance formula:

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

• P is the loan amount.
• r is the monthly interest rate: the yearly rate ÷ 12 ÷ 100.
• n is the number of monthly instalments.

Step-by-step example

A ₹10,00,000 loan at 10% for 5 years:

1. r = 10 ÷ 12 ÷ 100 = 0.00833.
2. n = 5 × 12 = 60.
3. (1 + r)^n = 1.6453.
4. EMI = ₹10,00,000 × 0.00833 × 1.6453 ÷ 0.6453 = ₹21,247.

Over 5 years you repay ₹12,74,823, so the total interest is ₹2,74,823.

Where each EMI goes

In month 1, interest is ₹10,00,000 × 0.00833 = ₹8,333, so only ₹12,914 of the EMI repays principal. As the balance falls, the interest part shrinks and the principal part grows. That is why prepaying early saves the most.

Flat rate is not the same

Some lenders quote a flat rate, charged on the full loan for the whole term. A 10% flat rate costs much more than 10% reducing. Convert it with the flat vs reducing calculator.

Skip the maths

The EMI calculator does this instantly and shows the full year-by-year breakup. For a home loan, use the home loan EMI calculator. To see how prepaying changes the picture, read home loan prepayment: reduce EMI or tenure.