An EMI — equated monthly instalment — is the fixed amount you pay your lender every month until the loan is repaid. Each EMI has two parts: interest on the amount still outstanding and principal, which brings the outstanding amount down. Knowing how the EMI is worked out helps you choose a loan amount and tenure you can live with.
The EMI formula
Lenders in India use the reducing-balance method for most personal and business loans. The formula is:
Where:
- P is the loan amount (principal)
- r is the monthly interest rate — the annual rate divided by 12 and by 100 (12% a year = 0.01 a month)
- n is the tenure in months
You don't need to work this out by hand — our EMI calculator does it instantly — but seeing it once makes the numbers less mysterious.
A worked example
Say you borrow ₹5,00,000 at 12% a year for 36 months. The monthly rate is 1% (r = 0.01) and n = 36.
- (1 + 0.01)^36 = 1.4308
- EMI = 5,00,000 × 0.01 × 1.4308 ÷ 0.4308 = ₹16,607 (rounded)
- Total paid over 3 years = ₹16,607 × 36 = about ₹5,97,858
- Total interest = about ₹97,858
The rates in this article are only for illustration. Your actual rate depends on the lender and your profile.
Where each EMI goes: the amortisation schedule
In the early months a larger part of the EMI is interest, because the outstanding amount is high. As you repay, the interest part shrinks and the principal part grows. For the same loan:
| Month | EMI | Interest | Principal | Outstanding after EMI |
|---|---|---|---|---|
| 1 | ₹16,607 | ₹5,000 | ₹11,607 | ₹4,88,393 |
| 2 | ₹16,607 | ₹4,884 | ₹11,723 | ₹4,76,670 |
| 3 | ₹16,607 | ₹4,767 | ₹11,840 | ₹4,64,829 |
This is why a prepayment early in the loan saves more interest than the same prepayment near the end.
How tenure changes your EMI and total interest
A longer tenure lowers the EMI but raises the total interest. Same ₹5,00,000 at 12% a year:
| Tenure | Monthly EMI | Total interest |
|---|---|---|
| 24 months | ₹23,537 | ₹64,882 |
| 36 months | ₹16,607 | ₹97,858 |
| 60 months | ₹11,122 | ₹1,67,333 |
Stretching from 3 to 5 years cuts the EMI by about a third but adds roughly ₹70,000 of interest. Pick the shortest tenure whose EMI you can pay comfortably every month, with some room left for emergencies.
How the interest rate changes your EMI
On ₹5,00,000 for 36 months, moving from 12% to 14% a year raises the EMI from ₹16,607 to ₹17,089 and the total interest from about ₹97,858 to ₹1,15,197. Small differences in rate add up over the life of a loan, which is why comparing offers matters.
Other costs to include
The EMI is not the whole cost. When you compare offers, also look at:
- Processing fee — usually a percentage of the loan, often deducted from the amount disbursed.
- GST on fees and charges.
- Prepayment or foreclosure charges, if any.
- Late payment charges.
Lenders must give you a Key Fact Statement that shows the all-in cost as an Annual Percentage Rate (APR) — read what the KFS tells you.
Flat rate vs reducing rate
Some offers quote a "flat" rate, where interest is charged on the full loan amount for the whole tenure. A flat rate looks lower but costs more. See flat vs reducing interest rate for a side-by-side example.
Quick tips
- Keep your total EMIs (old plus new) comfortably within your monthly budget — many lenders look for them to stay within roughly half of take-home income.
- Choose an EMI date a few days after your salary or main business inflow.
- Use auto-debit so you never miss an EMI; a single late payment can hurt your credit score.
Try different amounts and tenures in the personal loan EMI calculator or the business loan EMI calculator, or see ready EMI tables for common amounts such as a ₹1 lakh personal loan, a ₹5 lakh personal loan and a ₹10 lakh business loan. Prefer Hindi? Read EMI कैसे कैलकुलेट करें.
This guide is general information, not financial advice. Interest rates, fees, eligibility and other terms are set by each lender and can change; the figures in examples are illustrative only. Oxon Fintech is a loan facilitation platform, not a lender — loans are sanctioned and disbursed by our lending partners.