EMI Calculation Explained

What is an EMI?

EMI stands for Equated Monthly Installment. It is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.

The Formula

The mathematical formula for calculating EMI is:

$$E = P \times r \times \frac{(1 + r)^n}{(1 + r)^n - 1}$$

Where:

• E is EMI
• P is Principal Loan Amount
• r is monthly interest rate (Annual Rate / 12 / 100)
• n is loan tenure in months

How it works

In the initial years of your loan, a large portion of your EMI goes towards interest payment. As the loan tenure progresses, the principal component increases and the interest component decreases.

Try it yourself with our EMI Calculator.