How EMI Is Calculated: The Formula, Step by Step

Updated: 29 August 2026

An EMI — equated monthly instalment — is the fixed amount you repay each month on a loan, sized so that after the last payment the balance is exactly zero. The formula behind it is the same standard amortization mathematics used for ordinary fixed-rate loans worldwide. Here it is, worked all the way through.

The formula

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

• P — the principal: the amount borrowed.
• r — the interest rate per month, as a decimal: annual rate ÷ 12 ÷ 100.
• n — the tenure in months.

A worked example

Borrow 500,000 (in any currency) at 9% per year for 5 years:

• r = 9 ÷ 12 ÷ 100 = 0.0075 per month
• n = 5 × 12 = 60 months
• (1.0075)⁶⁰ ≈ 1.5657
• EMI = 500,000 × 0.0075 × 1.5657 ÷ 0.5657 ≈ 10,379 per month

Over 60 months you repay about 622,751 in total, of which about 122,751 is interest.

Why early payments are mostly interest

Each month, interest is charged on the balance still outstanding. In month one of the example, that's 500,000 × 0.0075 = 3,750 — so of the first 10,379 payment, only 6,629 actually reduces the loan. As the balance falls, the interest share of each identical payment falls with it and the principal share grows. This is also why prepaying early in the tenure saves the most interest: it removes balance during the months when interest charges are at their highest.

Tenure vs rate: what moves the number

Stretch the same loan to 7 years and the EMI drops to about 8,045 — but total interest climbs from about 122,751 to about 175,741. A longer tenure buys monthly breathing room at the cost of paying meaningfully more overall. Rate changes matter too, but for most borrowers tenure is the lever they actually control.

What the calculator does — and doesn't — include

The EMI Calculator applies exactly the formula above, in whatever currency you enter. Real loan offers can differ from it: lenders may add processing fees or insurance, round differently, use different day-count conventions, and floating rates change over the life of the loan. Treat the result as an illustration of the standard formula, not as financial advice — the final numbers always come from the lender's own schedule. For savings-side maths, see the SIP Calculator and FD Calculator.