EMI Calculator

How the EMI is actually calculated

Every regulated lender in India uses the same formula, so the number above is not an estimate of what a bank might charge — it is what they will charge, give or take rounding:

EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

P is the amount borrowed, n is the number of monthly instalments, and r is the monthly interest rate — the annual rate divided by twelve and by a hundred. A 9% loan has a monthly rate of 0.0075. What the formula does is find the one instalment amount that, paid every month for n months, exactly clears both the principal and the interest that accrues on the shrinking balance along the way.

The phrase that matters is shrinking balance. Interest each month is charged only on what you still owe. This is called the reducing-balance method, and RBI requires it for retail lending. You will still occasionally see a flat rate quoted, usually by vehicle dealers and some NBFCs — a "7% flat" loan charges interest on the full original amount for the entire tenure, which works out to roughly 13% on a reducing-balance basis. If a quote sounds unusually cheap, this is almost always why.

Why your early instalments barely touch the principal

Take a ₹25 lakh loan at 8.75% over 20 years. The EMI is about ₹22,100. In the first month, roughly ₹18,200 of that is interest and only ₹3,900 reduces the loan. It takes more than eleven years before the split crosses over and you are paying more principal than interest.

This is not a trick — it falls straight out of charging interest on the outstanding balance — but it has one important consequence. A rupee prepaid in year two removes far more future interest than the same rupee prepaid in year fifteen, because it removes that rupee from every remaining month's interest calculation. Expand the year-by-year schedule above and the shape is obvious: the interest column starts high and stays high for a long time.

Floating rates, and the tenure that quietly grows

Most home loans and many personal loans in India are floating-rate, linked to an external benchmark — usually the RBI repo rate — plus a spread the lender sets. When the repo rate moves, your loan is repriced at the next reset.

Here is the part that catches people out: lenders overwhelmingly keep the EMI unchanged and adjust the tenure instead. A rate rise of a percentage point on a twenty-year loan can add several years of instalments without your monthly outgo changing by a rupee, so nothing prompts you to notice. RBI's framework on floating-rate resets requires lenders to give borrowers the option to switch to a fixed rate, to increase the EMI rather than the tenure, or to prepay in part or full — and to communicate the revised tenure. Those options exist only if you ask, so read the reset letter rather than filing it.

What the calculator leaves out

The instalment is only part of what a loan costs. Before you compare two offers on EMI alone, account for:

• Processing fee — commonly 0.25% to 2% of the sanctioned amount, plus 18% GST, usually deducted from the disbursal.
• Loan insurance — often bundled in and financed as part of the loan, which means you pay interest on the premium for the whole tenure. It is rarely compulsory.
• Legal, technical and valuation charges on secured loans, and stamp duty on the loan agreement in some states.
• Prepayment terms. On floating-rate loans taken by an individual for a non-business purpose, lenders may not levy a foreclosure or prepayment penalty. Fixed-rate loans can and usually do.

The comparable number across lenders is the annual percentage rate, which folds the fees back into a single rate. Ask for it in writing; a lender that will only discuss the headline rate is telling you something.

Choosing a tenure without over-borrowing

A longer tenure lowers the instalment and raises the total cost, and the trade is steeper than most borrowers assume. On ₹30 lakh at 9%, moving from fifteen years to twenty-five drops the EMI by roughly ₹3,700 a month but adds around ₹19 lakh in interest — you buy about ₹4.4 lakh of monthly breathing room over ten years and pay four times that for it.

The workable rule is to choose the shortest tenure whose EMI you could still service in a bad month — a month with a medical bill, a gap between jobs, a school fee falling due. Lenders will often sanction an EMI up to roughly half your take-home pay; that is their risk appetite, not yours. If the only tenure that fits is the longest one on offer, the honest reading is usually that the loan is too large rather than that the tenure is too short.