Your EMI looks like one fixed number, but inside it the split between interest and principal changes every month. Once you see how the formula works, a few things make sense: why your loan barely falls in the early years, why longer tenures cost so much, and why early prepayments save the most. This guide walks through the formula with a worked example.
What is an EMI?
An EMI (equated monthly instalment) is the fixed amount you pay every month to repay a loan. Each EMI has two parts:
- Interest for that month, worked out on the amount you still owe.
- Principal, the part that actually reduces your loan.
Most home, car and personal loans in India are on a reducing balance. That means interest is charged only on what you still owe, not on the original loan amount. The formula below is for reducing balance loans.
What is the EMI formula?
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
- P is the loan amount (principal).
- r is the monthly interest rate: annual rate ÷ 12 ÷ 100. For 8.50% a year, r = 8.50 ÷ 12 ÷ 100 = 0.0070833.
- n is the number of monthly instalments. For 20 years, n = 240.
The formula finds the single fixed payment that, month after month, covers the interest and clears the whole loan exactly at the end.
How do I calculate EMI step by step?
Take a home loan of ₹30,00,000 at 8.50% for 20 years.
- Monthly rate: r = 8.50 ÷ 12 ÷ 100 = 0.0070833.
- Months: n = 20 × 12 = 240.
- Growth factor: (1 + r)^n = (1.0070833)^240 = about 5.4412.
- Top line: P × r × 5.4412 = ₹30,00,000 × 0.0070833 × 5.4412 = about ₹1,15,626.
- Bottom line: 5.4412 − 1 = 4.4412.
- EMI = ₹1,15,626 ÷ 4.4412 = about ₹26,035.
Over 240 months, you pay about ₹62,48,327 in total. That is your ₹30,00,000 loan plus about ₹32,48,327 in interest, more than the loan itself.
Why are early EMIs mostly interest?
Each month, interest is charged on the amount still owed. At the start you owe the full loan, so interest takes most of the EMI.
- Month 1 interest: ₹30,00,000 × 0.0070833 = ₹21,250.
- Month 1 principal: ₹26,035 − ₹21,250 = ₹4,785.
- New balance: ₹30,00,000 − ₹4,785 = ₹29,95,215.
Next month, interest is a little lower because the balance is a little lower, so slightly more of the same EMI goes to principal. This repeats every month. The full month-by-month table is called an amortisation schedule.
| Year | Interest paid that year | Principal paid that year | Interest share of EMIs | Loan left at year end |
|---|---|---|---|---|
| 1 | ₹2,52,709 | ₹59,707 | About 81% | ₹29,40,293 |
| 5 | ₹2,28,632 | ₹83,785 | About 73% | ₹26,43,815 |
| 10 | ₹1,84,452 | ₹1,27,964 | About 59% | ₹20,99,815 |
| 15 | ₹1,16,977 | ₹1,95,440 | About 37% | ₹12,68,962 |
| 20 | ₹13,921 | ₹2,98,495 | About 4% | ₹0 |
Figures use the unrounded EMI. Your lender's schedule may differ by a few rupees.
When does principal overtake interest?
In this example, the principal part of the EMI becomes larger than the interest part only in month 143, just short of 12 years into a 20-year loan. After 10 years of EMIs, about ₹31.2 lakh paid in total, the loan has come down by only about ₹9.0 lakh. Half the loan is repaid only around month 166, close to 14 years in.
This is normal. It is how a reducing balance loan works, not a sign that your bank is overcharging. But it explains why many borrowers feel their loan "is not going down".
How does tenure change EMI and total interest?
A longer tenure lowers the EMI, but you pay interest for longer. Here is the same ₹30,00,000 loan at 8.50%:
| Tenure | EMI | Total interest |
|---|---|---|
| 15 years | ₹29,542 | ₹23,17,594 |
| 20 years | ₹26,035 | ₹32,48,327 |
| 25 years | ₹24,157 | ₹42,47,044 |
| 30 years | ₹23,067 | ₹53,04,266 |
Going from 20 to 30 years cuts the EMI by about ₹2,968 a month but adds about ₹20.6 lakh of interest. Going from 20 to 15 years raises the EMI by about ₹3,507 but saves about ₹9.3 lakh.
Where do I find my own amortisation schedule?
- Key Facts Statement (KFS). For retail and MSME term loans sanctioned on or after 1 October 2024, RBI requires lenders to give a KFS that includes the loan's repayment schedule and an APR (annual percentage rate) computation (check the latest directions).
- Quarterly statements. RBI's rules on floating rate resets for EMI-based personal loans (check the latest directions) require lenders to send a statement each quarter showing principal and interest recovered so far, the EMI, the EMIs left, and the annualised rate.
- Your lender's app, website or branch. Most lenders can share a repayment schedule on request.
What does this mean for prepaying or switching?
Because interest is highest in the early years, money paid towards principal early saves the most interest. A prepayment cuts the balance at once, so every later month's interest is lower. A lower rate works the same way: it lowers the interest part of every EMI.
For floating rate loans to individuals for non-business purposes, RBI rules bar prepayment charges at all regulated lenders for loans sanctioned or renewed on or after 1 January 2026 (check the latest directions). Fixed rate loans follow the lender's own policy, so check your agreement.
Why might my lender's EMI differ slightly?
- Lenders may round the EMI, for example to the nearest rupee.
- Some lenders charge interest for the days between disbursal and your first EMI date separately. Ask your lender how it is shown.
- For loans disbursed in stages, such as under-construction flats, you may pay only interest on the amount drawn until full disbursal.
- Methods of computing interest can differ slightly between lenders. Your KFS and repayment schedule are the final word.
Do it in 10 minutes, free
Use the EMI calculator on LowerMyEMI to see your EMI, total interest and full amortisation schedule, and export it to Excel or PDF. If your rate looks high, enter your loan once and we draft one email per lender asking for their best rate, for you to send from your own email.