How EMI Is Calculated
An EMI (Equated Monthly Installment) is the fixed amount you pay every month on a loan. It covers two things at once: the interest the bank charges, and a piece of the principal (the amount you borrowed). Early on, most of your EMI goes to interest; over time, more of it repays the principal.
The EMI formula
EMI = 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 monthly payments.
A worked example
Say you borrow Rs 1,000,000 at 18% per year for 5 years (60 months). The monthly rate is 18 ÷ 12 ÷ 100 = 0.015. Plugging in: EMI ≈ Rs 25,393 per month. Over the full 5 years you pay about Rs 1,523,600 in total — meaning roughly Rs 523,600 is interest.
What changes your EMI
A longer term lowers the monthly EMI but raises total interest. The same loan over 8 years costs less per month, but you pay far more overall. A shorter term does the opposite. Even a 1% lower interest rate makes a meaningful difference on large loans, so it is always worth comparing banks.
Tips to pay less interest
Make part-payments toward the principal when you can — reducing principal early cuts all future interest. Choose the shortest term your budget genuinely allows. And check whether the rate quoted is flat or reducing balance: a "10% flat" rate typically costs about the same as an 18% reducing-balance rate, so compare like with like.
Try it yourself with the free Loan / Installment Calculator — enter your amount, rate and term to see your EMI and total interest instantly.