EMI Formula: How Banks Calculate Your Monthly Instalment
Every home loan, car loan, and personal loan statement shows one number — your EMI. But how is it actually calculated? The answer is a single mathematical formula that every bank in India uses.
The EMI Formula
P = Principal loan amount
r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
n = Loan tenure in months
Step-by-Step Example
Suppose you take a home loan of ₹50,00,000 at 8.5% annual interest for 20 years (240 months).
- Principal (P) = ₹50,00,000
- Monthly rate (r) = 8.5 ÷ 12 ÷ 100 = 0.007083
- Tenure (n) = 240 months
- Plug into the formula: E = 50,00,000 × 0.007083 × (1.007083)^240 / ((1.007083)^240 − 1)
- EMI ≈ ₹43,391
How Tenure Affects Your EMI
| Loan Amount | Rate | Tenure | EMI | Total Interest |
|---|---|---|---|---|
| ₹50,00,000 | 8.5% | 10 years | ~₹61,993 | ~₹24.4 lakh |
| ₹50,00,000 | 8.5% | 15 years | ~₹49,237 | ~₹38.6 lakh |
| ₹50,00,000 | 8.5% | 20 years | ~₹43,391 | ~₹54.1 lakh |
A longer tenure reduces your monthly burden but significantly increases the total interest paid over the life of the loan.
Principal vs Interest Split Over Time
In the early months of a loan, most of your EMI goes toward paying interest. As the outstanding principal falls, the interest component decreases and the principal repayment accelerates. This is why prepaying in the first few years saves the most interest.
Use our EMI Calculator to compute your exact monthly payment, see the full amortization schedule, and compare different tenures instantly.
Calculate My EMIEMI Formula in Excel
You can replicate the EMI formula directly in Microsoft Excel using the built-in PMT function:
=PMT(annual_rate/12, tenure_months, -principal)
For the example above: =PMT(8.5%/12, 240, -5000000) returns ₹43,391.