What Is EMI and How Is It Calculated?

The installment formula, a worked example, and the three factors that decide your monthly payment.

EMI — Equated Monthly Installment — is the fixed amount you pay your lender every month until the loan ends. Same payment, every month, no surprises.

The formula

EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1)
where P = loan amount, r = monthly interest rate, n = number of months.

Worked example

Borrow 1,000,000 at 12% annual for 5 years: monthly rate r = 0.01, n = 60 → EMI ≈ 22,244/month. Total paid ≈ 1,334,667 — meaning ~334,667 is interest.

The three levers

1. Principal: bigger loan, bigger EMI — linear.
2. Rate: even 1% less saves lakhs over a long loan. Negotiate and compare.
3. Tenure: longer tenure = smaller EMI but much more total interest.

Early in the loan, most of your EMI is interest; later, most is principal. That's why prepaying early saves the most.