EMI
Loan & CreditEquated Monthly Instalment
A fixed monthly payment that repays a loan over a set period, covering both the principal amount and the interest accrued.
Definition
An Equated Monthly Instalment (EMI) is a fixed payment amount made by a borrower to a lender on the same date each month. EMIs are used to pay off a loan in equal periodic payments over a defined repayment period.
Each EMI payment has two components: the interest component and the principal component. In the early months of a loan, a larger portion of the EMI goes toward paying interest, and a smaller portion reduces the principal. As the loan matures, this ratio flips — more of each payment goes toward the principal and less toward interest. This is called the reducing balance method or amortisation.
EMIs are used across all types of loans in India — home loans, car loans, personal loans, education loans, and consumer durable loans.
Formula
The standard EMI formula is:
EMI = P × r × (1+r)^n / ((1+r)^n − 1)
Where:
- P = Principal loan amount
- r = Monthly interest rate = Annual interest rate ÷ 12 ÷ 100
- n = Loan tenure in months
For example, if the annual rate is 8.5%, then r = 8.5 ÷ 12 ÷ 100 = 0.00708.
Worked Example
You take a home loan of ₹50 lakhs at an annual interest rate of 8.5% for 20 years (240 months).
- P = ₹50,00,000
- r = 8.5 ÷ 12 ÷ 100 = 0.00708
- n = 240
EMI = 50,00,000 × 0.00708 × (1.00708)^240 / ((1.00708)^240 − 1)
EMI ≈ ₹43,391 per month
Over 20 years, you pay ₹1,04,13,840 in total — ₹54,13,840 of which is interest. The home loan EMI calculator lets you model different scenarios instantly.
Key Things to Know
- Fixed vs floating rate: Fixed-rate EMIs do not change. Floating-rate EMIs can change when the RBI repo rate changes, affecting the effective interest rate.
- Prepayment: Paying more than your EMI in any month directly reduces the principal and cuts future interest costs.
- EMI vs total cost: A longer tenure lowers your monthly EMI but increases the total interest paid substantially.
- Credit score impact: Missing an EMI damages your credit score and attracts late payment charges. NACH mandates ensure most EMIs are auto-debited.
- Tax deduction: Home loan EMIs can provide tax benefits — the principal repayment qualifies under Section 80C (up to ₹1.5 lakh/year) and the interest under Section 24(b) (up to ₹2 lakh/year).