How to calculate EMI (and why the formula looks so intimidating)
Every EMI (Equated Monthly Installment) is built from the same idea: you're paying back a shrinking balance, and interest is charged only on what's left. The formula just encodes that idea in one line.
The formula
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)
- P is the principal — how much you borrowed.
- r is the monthly interest rate. If your loan quotes an annual rate, divide it by 12 and by 100 to get a decimal monthly rate.
- n is the number of monthly installments — years × 12.
That's it. The formula looks dense because it's compounding r over n periods twice (once in the numerator, once in the denominator), but it's really just "principal times a scaling factor."
A worked example
Say you borrow ₹10,00,000 at 8.5% annual interest for 20 years.
- P = 1,000,000
- r = 8.5 / 12 / 100 = 0.007083
- n = 20 × 12 = 240
Plugging in gives an EMI of roughly ₹8,678 per month. Over 240 months that's about ₹20,82,758 total — meaning you pay roughly ₹10,82,758 in interest alone, more than the principal itself. That's the cost of stretching a loan over two decades.
Why the EMI stays constant while the split changes
Early in the loan, most of each EMI goes to interest, because the outstanding balance is still large. As the balance shrinks, more of each fixed EMI goes toward principal. This is why paying even a little extra early in a loan saves disproportionately more interest than paying extra late — you're cutting down the balance while it's still accruing the most interest.
Try it without the arithmetic
Working the formula by hand is a good way to understand it once, but you don't need to redo it every time. Our EMI Calculator does the math instantly and shows a full year-by-year principal/interest breakdown, and the Loan Calculator adds a complete amortization table if you want to see every month.