How EMI is calculated, the formula in plain words, with a worked example

The short answer. EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the loan amount, r is the yearly rate ÷ 12 ÷ 100, and n is the number of months. A ₹25 lakh home loan at 8.5% for 20 years has r = 0.0070833 and n = 240, giving an EMI of ₹21,696.

An EMI, an equated monthly instalment, is the same amount every month, and each one pays that month's interest first and puts the rest towards the loan. Because the interest is charged only on what you still owe, it shrinks every month, so the share going to the loan grows. This is the reducing-balance method, which Indian banks and NBFCs use for home, car and personal loans.

The formula, part by part

Symbol	What it is	For a ₹25 lakh loan at 8.5% for 20 years
P	the loan amount (principal)	25,00,000
r	the monthly rate: yearly rate ÷ 12 ÷ 100	8.5 ÷ 12 ÷ 100 = 0.0070833
n	the tenure in months	20 × 12 = 240
(1 + r)ⁿ	how much ₹1 grows to over the tenure at that rate	1.0070833²⁴⁰ = 5.4412

Put them together:

EMI = 25,00,000 × 0.0070833 × 5.4412 ÷ (5.4412 − 1) = 96,355 ÷ 4.4412 = ₹21,696 (₹21,695.58 before rounding).

How to calculate your EMI

1. Write down the loan amount, the yearly interest rate from the sanction letter, and the tenure in months.
2. Work out r: divide the yearly rate by 12, then by 100. At 9%, r = 0.0075.
3. Work out (1 + r)ⁿ. On a phone calculator, type 1.0075, then the xʸ key, then the months.
4. Multiply P × r × that number, then divide by that number minus 1.
5. Or skip the arithmetic: enter the three numbers in the EMI Calculator, which also shows the month-by-month split.

In Excel or Google Sheets, =PMT(8.5%/12, 240, -2500000) gives the same ₹21,695.58.

Why the first EMIs are mostly interest

In month 1, you owe the full ₹25 lakh, so the interest is 25,00,000 × 0.0070833 = ₹17,708. Of the ₹21,696 EMI, only ₹3,987 reduces the loan. Next month the interest is charged on ₹24,96,013, a little less, so a little more goes to the principal, and so on.

Month	EMI	Interest	Principal	Still owed
1	21,696	17,708	3,987	24,96,013
2	21,696	17,680	4,015	24,91,997
120 (year 10)	21,696	12,460	9,235	17,49,846
240 (last)	21,696	153	21,543	0

Halfway through the tenure you have paid about ₹26 lakh in EMIs but still owe about ₹17.5 lakh. That is not a trick; it is how interest on a reducing balance works, and it is why a part payment made early saves far more interest than the same amount paid late. The Loan Amortization Schedule shows every month for your own loan.

What changes the EMI, and what changes the total

For the same ₹25 lakh:

Rate	Tenure	EMI	Total interest
8.5%	15 years	24,618	19.3 lakh
8.5%	20 years	21,696	27.1 lakh
8.5%	25 years	20,131	35.4 lakh
9.5%	20 years	23,303	30.9 lakh

Two lessons from that table. Stretching from 20 to 25 years lowers the EMI by only ₹1,565 a month but adds over ₹8 lakh of interest. And one percentage point of rate costs about ₹1,600 a month and ₹3.8 lakh over 20 years, which is why a rate reset or a balance transfer matters.

What the formula leaves out

• Processing fees, insurance and charges. They raise the real cost. The Key Facts Statement that the RBI requires lenders to give before you sign shows the annual percentage rate (APR) including them, and a repayment schedule.
• Floating rates. On a floating-rate loan the rate changes when the benchmark does. The RBI requires lenders to tell you whether they will change the EMI or the tenure, and to let you choose, including switching to a fixed rate where offered.
• Broken-period interest. Interest from the disbursal date to the first EMI date is often charged separately, so the first payment can differ.
• Flat-rate loans. Some consumer and two-wheeler loans quote a "flat" rate, charged on the original amount for the whole term. A 10% flat rate costs much more than 10% on a reducing balance; ask for the reducing-balance equivalent or the APR.

If it doesn't work

• Your answer is far too big or too small. Check that r is monthly and a fraction: 8.5% a year is 0.0070833, not 8.5 and not 0.085.
• The bank's EMI differs by a few rupees. Banks round differently, or calculate interest on a daily basis. A difference of a few rupees is normal; a difference of hundreds means a fee or a different rate is included.
• Excel gives a negative number. PMT returns a payment as negative. Put a minus sign before the loan amount, as above.
• The EMI on your statement changed. On a floating-rate loan the benchmark moved. Your lender's quarterly statement shows the new EMI and the months left.

Questions people ask

What is the formula for EMI?

EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1). P is the loan amount, r is the yearly interest rate divided by 12 and then by 100, and n is the number of monthly instalments. For ₹10 lakh at 9% for 5 years, r is 0.0075 and n is 60, giving an EMI of about ₹20,758.

Why is most of my EMI going to interest?

Interest each month is charged on what you still owe, and at the start you owe almost the whole loan. On ₹25 lakh at 8.5%, the first month's interest is ₹17,708 of a ₹21,696 EMI. As the balance falls, the interest share shrinks and the principal share grows, so the last EMIs are almost entirely principal.

Is it better to reduce EMI or tenure after a part payment?

Reducing the tenure saves more interest, because the loan ends sooner and fewer months of interest are charged. Reducing the EMI keeps the same end date but frees up cash every month. If the current EMI is comfortable, choosing a shorter tenure is usually the cheaper option over the life of the loan.

How do I calculate EMI in Excel?

Use the PMT function with the monthly rate, the number of months and the loan amount as a negative number. For ₹25 lakh at 8.5% for 20 years, type =PMT(8.5%/12, 240, -2500000), which returns 21,695.58. Google Sheets uses the same function with the same arguments.

Does a lower EMI mean a cheaper loan?

Not necessarily. A longer tenure lowers the EMI but adds months of interest: ₹25 lakh at 8.5% costs ₹21,696 a month over 20 years and ₹20,131 over 25, but the longer loan costs about ₹8 lakh more in total. Compare the total interest, or the APR in the lender's Key Facts Statement, rather than the EMI alone.

Sources

Checked 5 Oct 2026:

• Reserve Bank of India: Key Facts Statement (KFS) for Loans & Advances, RBI/2024-25/18 of 15 April 2024 (APR and the repayment schedule given before the loan is signed)
• Reserve Bank of India: Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans, RBI/2023-24/55 of 18 August 2023 (choice between a higher EMI and a longer tenure; option to switch to a fixed rate)
• Microsoft: PMT function (the same annuity formula in Excel)
• All EMIs and interest totals on this page are calculated with the formula above and rounded to the rupee.