How to Calculate Loan EMI (Formula + Examples)

Complete EMI calculation guide — reducing balance formula, step-by-step ₹30L home loan example, and quick-reference EMI table.

📅 Updated 2026-03-14 🕒 5 min read 📋 Free Calculator Included

📚 What Is EMI?

EMI (Equated Monthly Instalment) is the fixed monthly payment to repay a loan. Each EMI contains interest on the outstanding principal plus a principal repayment component. As you pay more EMIs, the interest component decreases and principal increases — the reducing balance method mandated by the RBI for all retail loans.

📋 The EMI Formula

EMI Formula (Reducing Balance)EMI = P × r × (1+r)^n / [(1+r)^n − 1]

P = Principal loan amount
r = Monthly interest rate = Annual rate / 12 / 100
n = Total number of monthly instalments

Step-by-Step

Identify P, r, n: Loan amount, annual rate÷12÷100 = monthly rate, tenure in months.

Calculate (1+r)^n: The compound factor over total months.

Numerator: P × r × (1+r)^n

Denominator: (1+r)^n − 1. Divide for EMI.

🧪 EMI Calculation Example

🌟 ₹30 Lakh Home Loan at 8.5%, 20 Years

P = ₹30,00,000 | r = 8.5/12/100 = 0.007083 | n = 240

Numerator: 30,00,000 × 0.007083 × (1.007083)^240 = 1,14,853

Denominator: (1.007083)^240 − 1 = 4.4036

EMI = 1,14,853 / 4.4036 = ₹26,082/month

Total paid: ₹26,082 × 240 = ₹62,59,680 | Total interest: ₹32,59,680

Loan	Amount	Rate	Tenure	EMI
Home Loan	₹30L	8.5%	20 yrs	₹26,082
Home Loan	₹50L	8.5%	20 yrs	₹43,470
Car Loan	₹8L	9.0%	5 yrs	₹16,607
Personal Loan	₹5L	14.0%	3 yrs	₹17,085

💳

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❓ Frequently Asked Questions

Why does EMI stay same even though interest decreases?

EMI is "equated" by design. As outstanding principal reduces, interest charged drops. The savings pay off more principal, accelerating loan closure — this is the mathematical property of the reducing balance formula.

How does interest rate change affect EMI?

On ₹30L for 20 yrs: at 8.5% EMI = ₹26,082; at 9.0% EMI = ₹26,992 (+₹910/mo); at 9.5% EMI = ₹27,964 (+₹1,882/mo). Each 0.5% rise adds ~₹950/month on a ₹30L loan.

What is the per lakh EMI rule of thumb?

At 8.5% for 20 yrs, EMI ≈ ₹868 per ₹1 lakh borrowed. For ₹50L: ₹868 × 50 = ₹43,400/month. Accurate to ~1–2% for common rates.

How does prepayment reduce EMI or tenure?

Prepaying reduces outstanding principal. Banks typically keep EMI constant and reduce tenure (saves more interest) or reduce EMI and keep tenure. Tenure reduction is mathematically better — saving 4–7 years on a 20-year loan with a single ₹5L prepayment in year 3.

🔗 Related Calculators

💳EMI Calculator 🏠Home Loan EMI 💵Personal Loan 📋Loan Amortisation

💡 Tip: EMI stays constant throughout the loan. Early payments are mostly interest; later payments are mostly principal — this is the reducing balance method.