Your EMI (Equated Monthly Installment) is calculated using a fixed formula based on three inputs: principal, interest rate, and tenure.
The formula
EMI = [P × R × (1+R)^N] / [(1+R)^N − 1]
Where P is the principal loan amount, R is the monthly interest rate (annual rate ÷ 12 ÷ 100), and N is the tenure in months.
Worked example
For a ₹5,00,000 loan at 12% p.a. over 36 months: R = 0.01, N = 36. Plugging into the formula gives an EMI of approximately ₹16,607 per month, with total interest of roughly ₹97,850 over the loan term.
What affects your EMI most
- **Tenure**: a longer tenure lowers your EMI but increases total interest paid.
- **Rate**: even a 1% rate difference can change total interest by thousands of rupees on a large loan.
- **Prepayment**: making extra payments early in the loan reduces the principal faster, cutting total interest significantly.
Sources & methodology
The EMI formula above is the standard reducing-balance amortisation formula used industry-wide, not specific to any one lender. For the official RBI framework on how banks price floating-rate retail loans, see the Reserve Bank of India's guidelines on External Benchmark Lending Rate (rbi.org.in).