How Loan EMI Is Calculated
EMI โ equated monthly installment โ is the fixed amount you pay your lender every month until a loan is fully repaid. Each payment covers that month's interest first, and whatever is left reduces the principal. Early in the loan you pay mostly interest; near the end you pay mostly principal.
The EMI Formula
- EMI = P x r x (1+r)^n / ((1+r)^n - 1)
- P is the loan amount.
- r is the monthly interest rate (annual rate divided by 12).
- n is the number of monthly payments.
A Quick Example
A $300,000 home loan at 7% annual interest for 30 years (360 months): r = 0.07/12 = 0.00583, giving an EMI of about $1,996. Over 30 years you would pay roughly $418,500 in interest alone โ more than the loan itself. Shortening the tenure raises the EMI but slashes total interest.
Smart Borrowing Tips
Compare the total interest, not just the EMI, when choosing between offers. Even a 0.5% lower rate saves tens of thousands on a long loan, and making one extra payment a year can cut years off the schedule. See how interest compounds with our compound interest calculator, or check what simple interest would cost using the simple interest calculator.