How to Calculate Loan EMI — Formula & Examples
Understand EMI calculation, how tenure and interest rate affect your payments, and strategies to save on total interest.
What is EMI?
EMI (Equated Monthly Instalment) is the fixed amount you pay your lender every month to repay a loan. Each EMI has two components: interest on the outstanding principal, and repayment of a portion of the principal itself.
In the early months of a loan, most of your EMI goes toward interest. As you repay, the principal reduces, and a larger share of each EMI goes toward principal repayment. This is called an amortising loan.
The EMI Formula
Where: P = Principal loan amount, r = Monthly interest rate (annual rate ÷ 12 ÷ 100), n = Total number of months
Example: ₹30 lakh home loan at 8.5% for 20 years
- P = ₹30,00,000
- r = 8.5 ÷ 12 ÷ 100 = 0.00708
- n = 20 × 12 = 240 months
- EMI = ₹26,035/month
- Total paid = ₹62,48,400 | Total interest = ₹32,48,400
How Tenure Affects Your EMI
Longer tenure = lower EMI but much higher total interest paid. This is the most important trade-off in loan planning.
| Tenure | EMI (₹30L at 8.5%) | Total Interest |
|---|---|---|
| 10 years | ₹37,194 | ₹14,63,280 |
| 15 years | ₹29,543 | ₹23,17,740 |
| 20 years | ₹26,035 | ₹32,48,400 |
| 25 years | ₹24,100 | ₹42,30,000 |
| 30 years | ₹23,076 | ₹53,07,360 |
Choosing 30 years over 10 years saves ₹14,118/month in EMI but costs ₹38,44,080 more in total interest.
How Interest Rate Affects EMI
| Rate | EMI (₹30L, 20yr) | Total Interest |
|---|---|---|
| 7.5% | ₹24,168 | ₹28,00,320 |
| 8.0% | ₹25,093 | ₹30,22,320 |
| 8.5% | ₹26,035 | ₹32,48,400 |
| 9.0% | ₹26,993 | ₹34,78,320 |
| 9.5% | ₹27,964 | ₹37,11,360 |
A 1% increase in rate on ₹30 lakh over 20 years costs approximately ₹2.3 lakh extra in total interest.
Part Prepayment — Biggest EMI Saving Strategy
Making part prepayments reduces your outstanding principal, which dramatically cuts total interest:
- ₹30L home loan at 8.5% for 20 years: Total interest = ₹32.5L
- Pay ₹2L extra in year 3: Save ~₹6L in interest and close loan 2.5 years early
- Pay ₹5L extra in year 3: Save ~₹14L in interest and close loan 5+ years early
Most home loans allow unlimited part prepayment without penalty (floating rate loans). Fixed rate loans may have a 2% prepayment charge — check your loan agreement.
How Much Loan Can You Afford?
A common rule: your total EMI obligations should not exceed 40–50% of your net monthly income.
| Monthly In-Hand | Max EMI (40%) | Approx Loan (8.5%, 20yr) |
|---|---|---|
| ₹50,000 | ₹20,000 | ~₹23 lakh |
| ₹75,000 | ₹30,000 | ~₹34.5 lakh |
| ₹1,00,000 | ₹40,000 | ~₹46 lakh |
| ₹1,50,000 | ₹60,000 | ~₹69 lakh |