EMI Calculator

How an EMI is calculated

An equated monthly instalment is a fixed payment covering both interest and principal on a reducing-balance loan. The amount stays constant, but its composition shifts: early instalments are mostly interest, later ones mostly principal.

A worked example

A loan of 2,500,000 at 9% annual interest over 20 years:

• Monthly rate: 9 / 12 / 100 = 0.0075
• Months: 240
• EMI = 22,493
• Total paid: 22,493 x 240 = 5,398,320
• Total interest: 2,898,320 — more than the amount borrowed

In month one, interest is 2,500,000 x 0.0075 = 18,750, so only 3,743 reduces the principal. By month 200 that ratio has reversed. This front-loading is why prepaying early is so much more effective than prepaying late.

What the tenure does

Extending the term lowers the instalment and raises the total cost, and the trade is worse than most people expect.

2,500,000 at 9%. Going from 20 to 30 years saves 2,377 a month and costs an extra 1,843,440 in interest. The last five years of extension buy almost no reduction in the instalment while adding nearly a million in interest — the curve flattens badly beyond about 20 years.

The effect of the rate

On a long loan, small rate differences compound into large sums. On the same 2,500,000 over 20 years:

Half a percentage point is worth roughly 190,000 over the term. Negotiating the rate, or refinancing when rates fall, is usually worth far more effort than people give it.

Prepayment: timing is everything

Because interest is charged on the outstanding balance, a lump sum paid early removes interest that would have accrued for the entire remaining term. The same amount paid in the final years removes almost nothing.

On the example loan, prepaying 500,000 at the end of year 3 saves roughly 1,400,000 in interest and shortens the term by about 5 years. The identical 500,000 paid in year 15 saves under 250,000. If you have a windfall and a long loan, applying it early is one of the highest-return uses of money available to most households.

Two practical points. Ask whether the lender applies a prepayment to reduce the tenure or reduce the EMI — reducing tenure saves far more interest, but many lenders default to reducing the instalment. And check for prepayment penalties, though these are prohibited on floating-rate home loans in several jurisdictions including India.

What the EMI figure excludes

• Processing fees, typically 0.5-1% of the loan, often deducted from the disbursed amount.
• Insurance — property insurance and any loan protection policy bundled with the loan.
• Stamp duty, registration and legal fees on a property purchase.
• Rate resets. A floating-rate loan changes with the benchmark. Lenders usually hold the EMI constant and extend the tenure instead, which is why a rate rise can silently add years to a loan.
• Late payment charges and the credit score damage that comes with them.

The APR, which folds fees into an effective rate, is the number to compare between offers. A loan with a lower headline rate and a large processing fee can be more expensive than one with a higher rate and none.

How much can you borrow

Lenders generally cap total EMI obligations at 40-50% of net monthly income, counting every existing loan. On 100,000 net income with a 10,000 car loan, that leaves roughly 30,000-40,000 of EMI capacity. Borrowing to the maximum is rarely wise — it leaves no room for a rate rise, an income interruption or an emergency, all of which are more likely over a 20-year horizon than they feel on the day you sign.

Frequently asked questions