How EMI is calculated
An EMI (equated monthly instalment) is the fixed amount you pay your bank every month until the loan is repaid. Each EMI first pays that month’s interest on the outstanding balance; the rest reduces the principal. Banks in India and Pakistan use the same formula:
P = loan amount · r = yearly rate ÷ 12 ÷ 100 · n = number of monthly EMIs
Worked example: ₹10 lakh at 9% for 20 years
- r = 9 ÷ 12 ÷ 100 = 0.0075 and n = 20 × 12 = 240
- (1 + r)^n = 1.0075^240 = 6.0092
- EMI = 10,00,000 × 0.0075 × 6.0092 ÷ (6.0092 − 1) = ₹8,997
Over 240 months you pay ₹21,59,342 in total, of which ₹11,59,342 is interest, more than the loan itself. In the first EMI, ₹7,500 goes to interest (10,00,000 × 0.0075) and only ₹1,497 reduces the balance. Expand the first year of the schedule above to watch the split change.
EMI for every ₹1 lakh
Multiply these by the number of lakhs you borrow. For a ₹40 lakh home loan at 8.5% over 20 years, the EMI is about 40 × ₹867.82 = ₹34,713.
| Tenure | 8.5% | 9% | 10% | 12% |
|---|---|---|---|---|
| 5 years | ₹2,051.65 | ₹2,075.84 | ₹2,124.70 | ₹2,224.44 |
| 10 years | ₹1,239.86 | ₹1,266.76 | ₹1,321.51 | ₹1,434.71 |
| 15 years | ₹984.74 | ₹1,014.27 | ₹1,074.61 | ₹1,200.17 |
| 20 years | ₹867.82 | ₹899.73 | ₹965.02 | ₹1,101.09 |
| 25 years | ₹805.23 | ₹839.20 | ₹908.70 | ₹1,053.22 |
| 30 years | ₹768.91 | ₹804.62 | ₹877.57 | ₹1,028.61 |
Notice how stretching the tenure from 20 to 30 years lowers the EMI only a little but adds years of interest.
Processing fee, GST and the true cost (APR)
Most lenders charge a one-time processing fee, often a percentage of the loan, and in India 18% GST is added to it. The fee is usually deducted from the amount paid out, so you repay the full loan while receiving less.
On the ₹10 lakh example, a 1% fee plus GST is ₹11,800. You receive ₹9,88,200 but still pay 240 EMIs of ₹8,997. The rate that links those two numbers is the APR, about 9.17% instead of 9%. Since October 2024, the RBI requires banks and NBFCs to give you a Key Facts Statement before you sign, showing the APR with all charges and the repayment schedule. Compare loans by APR, not by the headline rate.
Prepayment: reduce the tenure or the EMI?
When you prepay part of the loan, the bank usually asks whether to keep your EMI and shorten the loan, or keep the end date and lower the EMI. The calculator shows both side by side. For ₹10 lakh at 9% over 20 years with ₹1 lakh prepaid alongside the 12th EMI:
| Option | New EMI | Loan length | Interest saved |
|---|---|---|---|
| Reduce tenure | ₹8,997 | 190 months (4 years 2 months shorter) | ₹3,53,990 |
| Reduce EMI | ₹8,080 | 240 months | ₹1,09,052 |
Reducing the tenure saves over three times as much, because your money keeps working against the balance. Choose a lower EMI only if your monthly budget is tight.
Good to know before you prepay:
- RBI rules do not allow regulated lenders to charge prepayment penalties on floating-rate loans taken by individuals for non-business purposes. Fixed-rate and business loans may carry a charge; your Key Facts Statement lists it.
- When floating rates rise, RBI rules for EMI-based personal loans let you choose a higher EMI, a longer tenure or both, and to prepay. Re-run this calculator with the new rate to compare.
- Prepay from surplus money, not your emergency fund. If your loan rate is lower than what you expect to earn, investing the difference may make sense; the SIP calculator shows what a monthly investment could grow to.
Loans in Pakistan
The instalment formula is the same for house, car and personal finance from Pakistani banks; choose PKR above. Many bank loans are priced at KIBOR plus a margin and reset periodically, so your instalment can change when KIBOR moves. The State Bank of Pakistan’s Prudential Regulations for Consumer Financing set limits such as maximum tenures and down payments for car finance, so confirm the terms your bank can offer.
Tips
- Group the schedule by financial year (April–March for INR, July–June for PKR) to total the interest and principal you paid each year. In India these figures matter for home loan tax deductions; see the India income tax calculator. In Pakistan, check your salary tax with the Pakistan salary tax calculator.
- Keep total EMIs comfortably within your monthly income; many lenders cap them at around 40% to 50% of net income.
- Results are shown in whole rupees. Banks round each EMI, so their schedule can differ by a rupee or two.