Understanding EMI (Equated Monthly Installment)

What is EMI?

EMI, or Equated Monthly Installment, is the fixed amount you pay monthly to repay a loan, combining both principal and interest. Understanding EMI helps you plan your finances better.

How is EMI Calculated?

The EMI formula is:

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

Try It Yourself

Use our EMI Calculator to see how EMI works for your loan.

Tips for Managing EMI

  • Choose a tenure that balances affordability and total interest.
  • Consider prepayments to reduce interest costs.
  • Compare loan offers to get the best rate.

Understanding Your EMI Breakdown

Each EMI payment is divided into two parts:

Principal Component

This is the portion of your payment that reduces the loan balance. In the beginning of the loan term, this component is smaller, but it gradually increases with each payment.

Interest Component

This is the cost of borrowing, calculated on the outstanding loan balance. It's higher in the initial periods but decreases as the principal is paid off.

Factors Affecting Your EMI

Loan Amount

Higher loan amounts lead to higher EMIs.

Interest Rate

Lower interest rates result in lower EMIs.

Loan Tenure

Longer terms reduce EMI but increase total interest.