How Is EMI Calculated on a Personal Loan? (Formula, Example & EMI Table)
Your bank quotes an EMI number and you take it on faith. Here's the actual formula behind it, why it isn't just "loan amount divided by months," and why the tenure you choose can matter more than the interest rate.
The formula
EMI = P × R × (1+R)ⁿ ÷ [(1+R)ⁿ − 1]
Where:
- P = the loan amount (principal)
- R = the monthly interest rate (your annual rate ÷ 12 ÷ 100)
- n = the number of monthly instalments (years × 12)
A worked example
Take a ₹10,00,000 loan at 8% annual interest over 20 years:
- R = 8 ÷ 12 ÷ 100 = 0.006667
- n = 20 × 12 = 240
- EMI ≈ ₹8,364 per month
Over 240 months, that's ₹20,07,360 paid in total — meaning ₹10,07,360 in interest alone, on a ₹10,00,000 loan. That's the part a lot of people don't clock until they actually run the numbers.
How is EMI calculated on a personal loan? A step-by-step example
The formula is the same for a personal loan, home loan or car loan; only the amount, rate and tenure change. Take a personal loan of ₹5,00,000 at 14% a year for 3 years:
- Monthly rate: R = 14 ÷ 12 ÷ 100 = 0.011667
- Number of instalments: n = 3 × 12 = 36
- Growth factor: (1 + R)ⁿ = (1.011667)³⁶ ≈ 1.51827
- EMI = 5,00,000 × 0.011667 × 1.51827 ÷ (1.51827 − 1) ≈ ₹17,089 per month
Over 36 months you repay about ₹6,15,197, so the loan costs roughly ₹1,15,197 in interest. In the very first EMI, interest is ₹5,00,000 × 0.011667 ≈ ₹5,833 and only about ₹11,255 reduces the loan. Each month the interest is charged on the balance that is still outstanding, which is why this is called the reducing-balance method.
EMI for ₹1 lakh at common rates and tenures
Multiply by your loan amount in lakhs to get a quick estimate (for example ×5 for ₹5 lakh).
| Tenure | 10% | 12% | 14% | 16% | 18% |
|---|---|---|---|---|---|
| 1 year | ₹8,792 | ₹8,885 | ₹8,979 | ₹9,073 | ₹9,168 |
| 2 years | ₹4,614 | ₹4,707 | ₹4,801 | ₹4,896 | ₹4,992 |
| 3 years | ₹3,227 | ₹3,321 | ₹3,418 | ₹3,516 | ₹3,615 |
| 5 years | ₹2,125 | ₹2,224 | ₹2,327 | ₹2,432 | ₹2,539 |
Flat rate vs reducing balance: why an "8% flat" loan costs more than 8%
Some lenders quote a flat rate, where interest is charged on the full original amount for the whole tenure. For ₹5,00,000 at 8% flat for 3 years, interest is 5,00,000 × 8% × 3 = ₹1,20,000, so the EMI is (5,00,000 + 1,20,000) ÷ 36 ≈ ₹17,222. That EMI is what a reducing-balance loan at about 14.5% would charge, nearly double the headline rate. Always ask for the reducing-balance (annual percentage) rate before comparing offers.
Manual calculation, derivation and a calculator
The formula comes from requiring that the present value of all n equal payments equals the loan amount: P = EMI × [1 − (1+R)⁻ⁿ] ÷ R. Rearranging gives the EMI formula above. You can do it on any scientific calculator or in a spreadsheet with =PMT(rate/12, months, -loan), or skip the arithmetic with the free EMI Calculator.
Why the early payments are mostly interest
Every EMI is split into a principal portion and an interest portion, but that split isn't fixed — in the early months, most of your payment goes toward interest, and only a small slice reduces the actual loan balance. As the balance shrinks over the years, the interest portion shrinks with it and more of each EMI starts paying down principal. This is why prepaying a loan early saves disproportionately more interest than paying the same extra amount later in the tenure.
Longer tenure means lower EMI, but more total interest
Stretching a loan from 10 years to 20 years lowers the monthly EMI — which is exactly why it's tempting — but the total interest paid over the life of the loan goes up substantially, because you're carrying a balance (and paying interest on it) for twice as long. There's no getting around this trade-off: shorter tenure means a higher monthly outgo but a lower total cost; longer tenure eases monthly cash flow at the expense of paying more overall.
What a repayment schedule shows you
A month-by-month amortisation schedule breaks down exactly how much of each EMI goes to interest versus principal, and shows the shrinking loan balance over time. It's the clearest way to see how much of your money is genuinely reducing debt versus paying the bank for the privilege of borrowing.
Frequently asked questions
When is the first EMI deducted?
Usually one month after the loan is disbursed, on the EMI date you choose. If the loan is disbursed late in the month, many lenders also charge pre-EMI (broken-period) interest for the days before the first full EMI. Check your sanction letter.
Does a longer tenure reduce the EMI?
Yes, it lowers each EMI, but the total interest you pay rises because the balance stays outstanding for longer. Choose the shortest tenure whose EMI you can comfortably afford.
How can I reduce the interest on my loan?
Make part-prepayments early (when most of the EMI is interest), choose a shorter tenure, compare the reducing-balance rate rather than the flat rate, and negotiate the processing fee.
Is the EMI the same for a home loan and a personal loan?
The formula is identical. A home loan usually has a much lower rate and a longer tenure, so the EMI per lakh is lower, but the total interest can still be large.