EMI Calculator: Formula, How to Calculate Monthly Loan Installments

An EMI — Equated Monthly Installment — is the fixed amount you pay every month to repay a loan. It combines principal repayment and interest in a single number. Understanding how the EMI formula works helps you compare loan offers, plan prepayments, and avoid being surprised by amortisation schedules.

The EMI formula

The standard EMI formula is:

EMI = P × r × (1 + r)^n
      ─────────────────────
          (1 + r)^n − 1

Where:
  P = Principal loan amount
  r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
  n = Loan tenure in months

The formula looks complex but the intuition is straightforward: you're spreading the loan amount (plus all future interest) evenly across n payments so that the outstanding balance reaches exactly zero at the last payment.

Worked example: home loan

Suppose you take a home loan of ₹50,00,000 at 8.5% per annum for 20 years.

• P = 50,00,000
• Annual rate = 8.5%, so monthly rate r = 8.5 ÷ 12 ÷ 100 = 0.007083
• n = 20 × 12 = 240 months

EMI = 50,00,000 × 0.007083 × (1.007083)^240
      ──────────────────────────────────────
              (1.007083)^240 − 1

    = 50,00,000 × 0.007083 × 5.2748
      ─────────────────────────────
              5.2748 − 1

    = 50,00,000 × 0.03735 / 4.2748

    ≈ ₹43,671 per month

Over 240 months you pay ₹43,671 × 240 = ₹1,04,81,040 in total. The interest cost is ₹1,04,81,040 − ₹50,00,000 = ₹54,81,040 — more than the original principal. This is why tenure choice matters enormously.

How interest rate affects EMI

Same ₹50 lakh loan, 20-year tenure at different rates:

A 1% rate difference on a ₹50 lakh loan over 20 years costs roughly ₹7–8 lakh more in interest. Negotiating your interest rate down by even 0.5% at origination is worth significant effort.

How tenure affects EMI and total cost

Same ₹50 lakh loan at 8.5% p.a. at different tenures:

Extending from 20 to 30 years saves only ₹5,225/month in EMI but costs an extra ₹33,59,520 in interest. Shorter tenures hurt your monthly cash flow but dramatically reduce the total cost of the loan.

How amortisation works

In the early months, most of your EMI is interest and very little is principal repayment. As the outstanding balance shrinks, the interest component falls and the principal component rises — but the EMI stays constant.

For the ₹50 lakh / 8.5% / 20-year example, the first few months look like:

Prepayment: how it helps

Making a lump-sum prepayment directly reduces the outstanding principal, which shrinks future interest. Even a small prepayment in the early years has outsized impact because you eliminate years of compounding interest.

Example: a ₹2 lakh prepayment at the end of year 1 on the above loan reduces the remaining tenure by approximately 14 months and saves roughly ₹6 lakh in total interest — a 3× return on the prepayment amount.

Check the prepayment penalty clause before paying early — some lenders charge 1–2% on prepaid amounts for fixed-rate loans.

Use the DevBench EMI Calculator to compute your exact monthly installment, total interest, and amortisation schedule for any loan amount, rate, and tenure.