What Is an EMI?
An EMI (Equated Monthly Installment) is the fixed amount you pay to your bank or lender every month to repay your loan. Each EMI consists of two components: a portion of the principal and the interest charged on the remaining balance. As you make payments, the interest portion decreases while the principal portion increases.
EMI Formula
EMI = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]
Where:
P = Principal loan amount
r = Monthly interest rate (Annual Rate ÷ 12 ÷ 100)
n = Loan tenure in months
Where:
P = Principal loan amount
r = Monthly interest rate (Annual Rate ÷ 12 ÷ 100)
n = Loan tenure in months
Example Calculation
For a ₹10,00,000 loan at 10% annual interest for 5 years:
- Monthly rate (r) = 10 ÷ 12 ÷ 100 = 0.00833
- Tenure (n) = 60 months
- EMI = ₹21,247 per month
- Total Payment = ₹12,74,823
- Total Interest = ₹2,74,823
Tips to Reduce Your EMI Burden
- Make a larger down payment to reduce the principal
- Choose a longer tenure for lower monthly payments (but more total interest)
- Compare interest rates from multiple lenders
- Maintain a good credit score (750+) for better rate offers
- Make annual part-prepayments to reduce principal faster