How Loan EMI Is Calculated (Formula & Example)
The EMI formula explained: how monthly loan payments, total interest and cost are worked out from the amount, interest rate and term, with a worked example.
An EMI (Equated Monthly Instalment) is the fixed amount you repay each month on a loan. It is calculated from three inputs — the loan amount, the interest rate and the term — using one standard formula.
The EMI formula
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
Where:
- P = principal (the amount borrowed)
- r = monthly interest rate = annual rate ÷ 12 ÷ 100
- n = number of monthly instalments (years × 12)
A worked example
Borrow 1,000,000 at 9% annual interest for 20 years:
- r = 9 ÷ 12 ÷ 100 = 0.0075
- n = 20 × 12 = 240
- EMI ≈ 8,997 per month
- Total paid ≈ 2,159,000, of which ≈ 1,159,000 is interest
Notice the interest is larger than the principal — that is normal for long terms.
Why early payments are mostly interest
Each instalment is split between interest (charged on the remaining balance) and principal. Early on the balance is high, so most of the payment is interest; over time the principal share grows. This is called amortization.
Two levers that cut cost
- A shorter term raises the EMI but sharply lowers total interest.
- A lower rate reduces both — even 0.5% compounds over hundreds of payments.
Try your own numbers in the loan calculator — it shows the monthly payment, total interest and total cost instantly. Next up: How to calculate a percentage.