The EMI formula
An EMI (equated monthly instalment) is a fixed monthly payment that repays both interest and principal so that the loan reaches exactly zero on the last instalment. Indian banks and NBFCs calculate it with the standard annuity formula:
- P = principal, the loan amount (for example ₹30,00,000)
- r = monthly interest rate = annual rate ÷ 12 ÷ 100 (8% a year → 0.0066667)
- n = number of monthly instalments (20 years → 240)
Worked example: EMI for ₹30 lakh at 8% for 20 years
Step 1: r = 8 ÷ 12 ÷ 100 = 0.0066667. Step 2: (1 + r)240 = 4.9268. Step 3: EMI = 30,00,000 × 0.0066667 × 4.9268 ÷ (4.9268 − 1) = ₹25,093. Over 240 months you pay ₹60,22,368, of which ₹30,22,368 is interest — 101% of the amount borrowed.
How each EMI is split between interest and principal
Interest is charged every month on the outstanding balance. The rest of the EMI repays principal, so the balance falls a little each month and the interest part shrinks while the principal part grows — the EMI itself stays the same.
| Month | Interest | Principal | Balance after EMI |
|---|---|---|---|
| Month 1 | ₹20,000 | ₹5,093 | ₹29,94,907 |
| Month 2 | ₹19,966 | ₹5,127 | ₹29,89,780 |
| Month 3 | ₹19,932 | ₹5,161 | ₹29,84,618 |
In this example the principal part of the EMI overtakes the interest part only in month 137. That is why early prepayments save so much interest, and why a loan that is half-way through its tenure still has well over half of the principal outstanding.
How to calculate EMI in Excel or Google Sheets
Use =PMT(8%/12, 240, -3000000) to get the EMI (₹25,093). =IPMT(8%/12, 1, 240, -3000000) gives the interest in month 1 and =PPMT(8%/12, 1, 240, -3000000) the principal. Change the second argument to see any month. Or skip the spreadsheet and use our EMI calculator, which also shows prepayment savings.
What moves the EMI most?
| Scenario | EMI | Change |
|---|---|---|
| Base case: ₹30 lakh, 8%, 20 yrs | ₹25,093 | — |
| Double the loan: ₹60 lakh | ₹50,186 | +100% |
| Rate +1%: 9% | ₹26,992 | +8% |
| Tenure 30 yrs | ₹22,013 | -12% |
| Tenure 10 yrs | ₹36,398 | +45% |
The EMI is directly proportional to the loan amount, so doubling the loan doubles the EMI. A 1% higher rate raises a 20-year EMI by about 7%. Tenure works with diminishing returns: going from 20 to 30 years cuts the EMI by only about 12%, while going from 20 to 10 years raises it by 45%.
Flat rate vs reducing balance rate
Home loans are always on a reducing balance, but some personal, two-wheeler and consumer loans are quoted at a flat rate: interest = principal × flat rate × years, added to the principal and divided by the number of months. A ₹2 lakh loan at a 7% flat rate for 3 years has an EMI of (2,00,000 + 42,000) ÷ 36 = ₹6,722. The same EMI on a reducing balance corresponds to about 12.83% — almost double the quoted rate. The Key Fact Statement that lenders must give you shows the annual percentage rate (APR), which makes the comparison fair.
Small differences you may notice
- Pre-EMI interest: on an under-construction flat with part disbursements, you may pay only interest on the amount disbursed until full disbursement; the EMI starts later.
- Broken-period interest: interest for the days between disbursal and the first EMI date is often collected separately.
- Rounding: banks round EMIs to the rupee and adjust the last instalment.
- Rate resets: on floating loans, a rate change recalculates the EMI (or the tenure) from the outstanding balance using the same formula.