EMI calculation formula explained, with an example

EMI stands for equated monthly instalment: the fixed amount you pay each month on a loan. Banks use this formula:

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

What the letters mean

• P is the loan amount.
• r is the monthly interest rate, which is the yearly rate divided by 12 and by 100.
• n is the number of monthly payments.

Example

For a loan of ₹10,00,000 at 8.5% a year for 20 years, r is 0.00708333 and n is 240. The EMI comes to about ₹8,678 a month. Try the same numbers in the EMI Calculator to see the total interest and the month-by-month split.

Tip

A shorter tenure raises the EMI but lowers the total interest. Compare a few tenures before you decide.