How to Calculate EMI: A Complete Guide

Last updated: January 2025 | 7 min read

EMI (Equated Monthly Installment) is the fixed amount you pay each month to repay a loan. Understanding how EMI is calculated helps you make better financial decisions when taking loans for homes, cars, or personal needs.

What is EMI?

EMI consists of two components:

Principal: The original loan amount
Interest: The cost of borrowing

In the early stages of a loan, a larger portion of your EMI goes toward interest. As time progresses, more goes toward the principal.

The EMI Formula

EMI = P × r × (1+r)^n / ((1+r)^n - 1)

Where:

P = Principal loan amount
r = Monthly interest rate (Annual rate ÷ 12 ÷ 100)
n = Number of monthly installments (Loan term in years × 12)

Step-by-Step Calculation

Example: Home Loan
Principal (P): $200,000
Annual Interest Rate: 7%
Loan Term: 20 years

Step 1: Calculate monthly rate (r)
r = 7 ÷ 12 ÷ 100 = 0.00583

Step 2: Calculate number of payments (n)
n = 20 × 12 = 240 months

Step 3: Apply the formula
EMI = 200,000 × 0.00583 × (1.00583)^240 / ((1.00583)^240 - 1)
EMI = $1,550.60 per month

Total repayment: $1,550.60 × 240 = $372,144
Total interest: $372,144 - $200,000 = $172,144

Factors Affecting EMI

Factor	Effect on EMI
Higher loan amount	Increases EMI
Higher interest rate	Increases EMI
Longer loan term	Decreases EMI (but more total interest)
Higher down payment	Decreases EMI (lower principal)

EMI Comparison by Loan Term

For a $100,000 loan at 8% interest:

Term	EMI	Total Interest	Total Payment
10 years	$1,213	$45,594	$145,594
15 years	$956	$72,017	$172,017
20 years	$836	$100,746	$200,746
30 years	$734	$164,155	$264,155

Key Insight: A shorter loan term means higher EMI but much less total interest paid. A 10-year term saves over $118,000 in interest compared to a 30-year term!

Tips to Reduce Your EMI

Make a larger down payment - Reduces the principal amount
Negotiate interest rates - Even 0.5% lower saves thousands
Improve your credit score - Better scores get better rates
Choose a longer term - But be aware of higher total interest
Make prepayments - Extra payments reduce principal faster

Fixed vs Floating Interest Rates

Type	Pros	Cons
Fixed Rate	Predictable EMI, protection from rate hikes	Usually higher initial rate
Floating Rate	Lower initial rate, benefit when rates drop	EMI can increase if rates rise

Calculate Your EMI Instantly

Use our free EMI Calculator to plan your loan!

Common Questions

Can I change my EMI during the loan?

Yes, through refinancing or prepayment. Some lenders also offer step-up or step-down EMI options.

What happens if I miss an EMI?

You'll face late payment fees, negative credit score impact, and potential legal action for repeated defaults.

Is a lower EMI always better?

Not necessarily. A lower EMI often means a longer term and more total interest paid over time.