How EMI is calculated: formula, amortisation and total interest
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An EMI is a fixed monthly payment that covers the interest due that month plus a slice of the principal. This guide works through the standard reducing-balance formula on a ₹20,00,000 loan, shows why early EMIs are mostly interest and how tenure changes the total cost, and explains flat-rate quotes, prepayment and the costs a calculator can't see. The rates used are illustrations, not current offers or advice; your lender's sanction letter and loan agreement decide the real figures.
The EMI formula, step by step
The standard way to calculate an EMI is on a reducing balance, with this formula: EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1). P is the loan amount, n is the number of monthly payments, and r is the monthly interest rate as a decimal, which is the annual rate divided by 12 and then by 100.
Take a loan of ₹20,00,000 at 9% a year for 15 years. Then n = 180 and r = 9 ÷ 12 ÷ 100 = 0.0075. Next, (1 + r)^n = 1.0075^180 ≈ 3.83804. Putting it together, P × r = ₹15,000, and ₹15,000 × 3.83804 ÷ 2.83804 ≈ ₹20,285 a month. Over 180 months you pay about ₹36,51,360 in total, so the interest comes to about ₹16,51,360.
Why early EMIs are mostly interest
Each month the lender charges interest on the balance still outstanding, and whatever is left of the EMI repays principal. In month 1 of the example, interest is ₹20,00,000 × 0.0075 = ₹15,000, so only ₹5,285 of the ₹20,285 EMI reduces the loan, leaving a balance of ₹19,94,715.
The next month's interest is charged on that slightly smaller balance, so a little more of the EMI goes to principal, and the shift continues month after month. It is slow at first: after 12 EMIs, about ₹2,43,424 paid in all, the balance has fallen by only ₹66,107, while ₹1,77,317 has gone on interest. The principal part of the EMI first exceeds the interest part in month 89, more than seven years into the fifteen.
This pattern is called amortisation. It is why a prepayment early in a loan saves more interest than the same prepayment near the end, and why the balance on a long loan seems to barely move for the first few years.
How tenure changes the total interest
A longer tenure lowers the EMI because the principal is spread over more payments, but you owe the money for longer, so the total interest rises. Stretching the example loan from 15 to 20 years lowers the EMI by about ₹2,291 a month, roughly 11%, but adds about ₹6,67,325 of interest, roughly 40% more. The Percentage Calculator has a Percentage Change box for comparisons like this.
Over 20 years the interest is more than the amount borrowed. The first EMI repays only ₹2,995 of principal, and the principal part doesn't overtake the interest part until month 149. Which tenure suits you depends on your budget, but it helps to see both totals before deciding. The same ₹20,00,000 at 9%:
- 15 years (180 months): EMI about ₹20,285, total interest about ₹16,51,360, total paid about ₹36,51,360.
- 20 years (240 months): EMI about ₹17,995, total interest about ₹23,18,685, total paid about ₹43,18,685.
Flat-rate quotes versus reducing balance
Some loans are quoted at a flat rate: interest is charged on the original amount for the whole term, even though you repay part of the principal every month. On a reducing balance, interest is charged only on what you still owe, which falls over time. Because the balance you owe shrinks steadily, the same headline rate costs more as a flat rate than on a reducing balance.
Example: ₹2,00,000 for 2 years at 12% flat. The interest is ₹2,00,000 × 12% × 2 = ₹48,000, so you repay ₹2,48,000 over 24 months, an EMI of about ₹10,333. At 12% on a reducing balance, the same loan has an EMI of about ₹9,415 and total interest of about ₹25,953.
To compare a flat quote fairly, find the reducing-balance rate that gives the same EMI. Here it is about 21.6%: entering ₹2,00,000, 24 months and 21.57% in the EMI Calculator returns an EMI of ₹10,333. The equivalent rate depends on the rate and the tenure, so work it out for each quote, or ask the lender for the reducing-balance rate or the annual percentage rate (APR).
Prepayment and floating rates
A prepayment, or part-payment, reduces the outstanding principal straight away, so every later month's interest is charged on a smaller balance. Depending on the lender and what you ask for, the loan then usually keeps the same EMI and ends sooner, or keeps the same tenure with a lower EMI.
Suppose you prepay ₹2,00,000 on the example loan just after the 24th EMI, when the balance is about ₹18,61,585, and there is no charge. Keeping the EMI at ₹20,285 clears the remaining ₹16,61,585 in about 128 months instead of 156 and saves roughly ₹3,78,000 of interest. Keeping the 156 months instead lowers the EMI to about ₹18,106 and saves roughly ₹1,40,000. A shorter tenure saves more because the balance falls faster; a lower EMI eases the monthly budget.
Whether you can prepay, how much, and at what cost depends on your loan agreement, and charges differ by loan type. For example, RBI rules don't allow prepayment penalties on floating-rate home loans taken by individuals, while a fixed-rate loan may carry a charge set out in the agreement.
On a floating-rate loan, the rate follows the lender's benchmark, so the EMI, the tenure or both can change during the loan. A calculator that assumes one fixed rate can still help: see the question below on recalculating after a rate change.
What a calculator can't know
An EMI calculator works from three numbers. The real cost of a loan also depends on details only your lender knows, listed below. For retail loans, lenders regulated by the RBI must give you a Key Facts Statement that shows the annual percentage rate (APR) including fees and charges, which is a better basis for comparing offers than the EMI alone. In every case, the sanction letter and the loan agreement decide what you actually pay.
- Processing fees and other charges, which may be paid upfront or deducted from the amount disbursed, so you receive less than the loan amount you repay.
- Insurance bundled with the loan. If a premium is added to the loan amount, you pay EMIs and interest on it too.
- Rounding. A lender may round the EMI up to the next rupee and adjust the final instalment.
- Broken-period interest for the days between disbursement and the start of the first EMI cycle, charged separately or added to the first EMI.
- Pre-EMI interest on loans released in stages, such as for a home under construction, where interest is paid on the amount released until full EMIs begin.
Checking the numbers in the FlexyPdf EMI Calculator
The EMI Calculator uses the same reducing-balance formula. Enter the Loan Amount (₹), the Interest Rate (% per year) and the Tenure, choosing Months or Years; a tenure in years is converted to whole months, up to 600. It shows the Monthly EMI, Total Interest and Total Payment, rounded to the nearest rupee, with a bar splitting the total between principal and interest.
To reproduce the example, enter 2000000, 9 and 15 Years: you should see ₹20,285, ₹16,51,360 and ₹36,51,360, with interest at 45.2% of the total. Show Amortization Schedule lists every month's EMI, principal, interest and remaining balance, so you can confirm the ₹15,000 of interest in month 1, the balance of about ₹18,61,585 after month 24, and the month in which principal overtakes interest.
Questions
How much can I borrow for an EMI of ₹15,000?
Rearrange the formula: P = EMI × ((1 + r)^n − 1) ÷ (r × (1 + r)^n). At 9% for 15 years, an EMI of ₹15,000 corresponds to a loan of about ₹14,78,901; enter that amount in the calculator and the EMI comes back as ₹15,000. Lenders set your actual limit from your income, existing debts and their own rules, so treat this as arithmetic only.
How do I recalculate after my floating rate changes?
Open the schedule at the month of the change and note the balance. Enter that balance as the loan amount, with the new rate and the months remaining. In the example, if the rate rose to 10% after 24 EMIs and the tenure stayed the same, ₹18,61,585 over 156 months gives an EMI of about ₹21,368. If the lender keeps the EMI at ₹20,285 instead, the remaining term stretches by roughly a year and a half.
What does the total interest figure assume?
That every EMI is paid on its due date for the full tenure, the rate never changes, nothing is prepaid, and interest is charged monthly at one-twelfth of the annual rate. Fees, insurance and broken-period interest are not included, and changing any of these assumptions changes the total.
Is a 0% or "no-cost" EMI really free?
At 0% the calculator simply divides the amount by the number of months. Whether an offer costs you nothing depends on its terms: look for a processing fee, or a discount you would have received by paying the full amount upfront.
Tools used in this guide
This guide was drafted with the help of AI writing tools and checked against how the linked FlexyPdf tools actually work. It is general information, not professional advice. Found a mistake? Let us know.