What is EMI?
EMI stands for Equated Monthly Instalment - the same amount you pay every month to the lender until the loan is fully repaid. Even though the amount stays constant, the split between interest and principal changes every month.
Last updated: 15 June 2025
The EMI formula
EMI = P × r × (1 + r)ⁿ / ((1 + r)ⁿ - 1)
Where:
P = loan principal (in rupees)
r = monthly interest rate (annual rate ÷ 12 ÷ 100)
n = tenure in months
Example: For ₹5 lakh at 12% p.a. for 5 years, monthly rate r = 1%, n = 60. EMI = ₹11,122.
How the split changes over time
In the first EMI, most of what you pay is interest and only a small part reduces principal. As the outstanding principal shrinks, the interest component also shrinks and more of the EMI goes toward principal. This is called an amortisation schedule.
What EMI does not include
- Processing fee (charged upfront)
- GST on processing fee
- Foreclosure or part-payment charges
- Late payment penalties on missed EMIs
- Insurance premium if bundled with the loan