Key takeaways
- EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with r the monthly rate and n the number of months.
- 100,000 at 6% over 5 years costs 1,933.28 a month and 15,996.81 in total interest.
- Early payments are mostly interest; the share of principal grows over time.
- A one-off prepayment early in the loan saves more interest than the same amount paid later.
On this page
General information for fixed-rate, reducing-balance loans with monthly payments. It is not financial advice; your lender's offer document, APR and fees decide the real cost.
The formula
EMI (equated monthly instalment) is the fixed payment that repays a loan, with interest, over its term:
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- P: the amount borrowed (principal)
- r: the monthly interest rate = annual rate ÷ 12 ÷ 100
- n: the number of monthly payments
Worked example
Borrow 100,000 at 6% a year for 5 years.
- r = 6 ÷ 12 ÷ 100 = 0.005
- n = 5 × 12 = 60
- (1 + r)ⁿ = 1.005⁶⁰ ≈ 1.34885
- EMI = 100,000 × 0.005 × 1.34885 ÷ 0.34885 ≈ 1,933.28
Over 60 months you pay 115,996.81, so the interest is 15,996.81. The loan and EMI calculator shows this with a year-by-year table.
Where each payment goes
Each month, interest is charged on the balance still owed, and the rest of the EMI repays principal. In the example, the first payment includes 500 of interest (0.5% of 100,000) and 1,433.28 of principal. Over the first year you pay 5,519.05 in interest and repay 17,680.32 of the loan; by the last year almost the whole payment is principal.
What the rate and term really cost
| Loan of 100,000 | EMI | Total interest |
|---|---|---|
| 6%, 5 years | 1,933.28 | 15,996.81 |
| 7%, 5 years | 1,980.12 | 18,807.19 |
| 6%, 4 years | 2,348.50 | 12,728.14 |
One percentage point adds about 2,800 of interest here. On a 1,000,000 mortgage over 25 years, 4.5% means 5,558.32 a month and 667,497 of interest, while 5.5% means 6,140.87 a month and 842,262 of interest: almost 175,000 more.
Prepayment
Paying an extra 10,000 after the first year of the 6% example shortens the loan from 60 to 54 months and cuts total interest from about 15,997 to about 13,466, if the lender keeps the EMI the same and allows prepayment without a fee. Ask about early-settlement charges first.
Flat rates
Some lenders quote a "flat" rate, charged on the original amount for the whole term. A flat rate looks much cheaper than it is; read our guide to flat vs reducing rates before comparing offers. To see how money grows rather than shrinks, try the compound interest calculator.
Fact-checked against the sources above. We test every tool we mention. Editorial policy.
