Understanding Equated Monthly Installments (EMI)
An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are applied to both interest and principal each month so that over a specified number of years, the loan is paid off in full. Our EMI Calculator instantly shows you how much your monthly obligation will be.
If you're buying a vehicle and want to calculate affordability based on your desired EMI, try our Motorcycle & Auto Loan Calculator.
The Amortization Formula
The mathematical formula used to calculate an EMI is standard across the banking industry:
E = P × r × (1 + r)ⁿ / ((1 + r)ⁿ - 1)
- E is the EMI (Equated Monthly Installment)
- P is the Principal Loan Amount
- r is the monthly interest rate (Annual Rate / 12 / 100)
- n is the loan tenure in months
In the early years of a long-term loan (like a 30-year mortgage), a large portion of the EMI goes towards paying the interest, while a smaller portion goes towards the principal. This ratio gradually reverses over time.
Factors that Affect Your EMI
- Loan Amount (Principal): The total amount you borrow. A higher principal directly increases the EMI. Making a larger down payment reduces the principal and lowers your EMI.
- Interest Rate: The cost of borrowing the money. Even a 0.5% reduction in interest rate can save you thousands of dollars over the life of a long-term loan.
- Loan Tenure: The time given to repay the loan. A longer tenure reduces your monthly EMI, but increases the total amount of interest you will pay over the life of the loan. A shorter tenure increases the EMI but saves you money on interest.