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Vaishnavi kale
Vaishnavi is a Financial Content Writer at LoansJagat. She holds a B.Sc. and an M.Sc. She has experience in writing SEO-focused content across finance, digital marketing, education, and Ayurveda. Before joining LoansJagat, she worked with digital marketing agencies serving fintech clients and quick-commerce brands like Zepto and blinkit. At LoansJagat, Vaishnavi writes on banking, loans, personal finance, and insurance. Her work involves researching financial topics, understanding user search intent, and creating content that is clear and accurate. She has experience in SEO content writing, keyword research, content optimisation, and AEO. She enjoys simplifying complex topics into practical information that readers can easily understand and use. She believes that well-researched and reliable content plays an important role in helping people make informed financial decisions.
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Nowadays, you can take out loans very easily. There are a lot of banks, NBFCs and digital platforms. Have you ever thought about the EMI you pay every month?. You should always calculate the EMI before jumping into a loan journey because EMI isn't a current liability but a future commitment. In case you lose your job in the future, paying EMIs can become difficult. That's why, before taking a loan to calculate your EMI.
Key Takeaways
EMI stands for Equated Monthly Instalment. You get this option when you have to pay for something. If you are not eligible to pay a lump sum amount in return for a product or money, then you can go for EMI.
EMIs are generally fixed for loans with a fixed interest rate. But they can change in the case of floating-rate loans. When the lender revises the applicable interest rate, the EMI amount, the loan tenure, or both can be adjusted according to the loan term.
Your principal amount, time period, and the interest rate are the key factors that affect your EMI amount. All these factors decide what amount of EMI you are going to pay each month.
EMIs are commonly used for various loans and financed purchases, including personal, home, vehicle, education and consumer-durable loans. Like if you bought a laptop worth 1,00,000, and currently you don't have that much money. You can pay this amount plus interest in the form of EMI every month for a specific time period.
Similarly, EMI works on a loan. When you get a loan, you have to pay it via EMI every month. Most commonly, EMI is used in consumer durable loans, education loans, vehicle loans, and home loans.
You take a loan; in return, you need to pay the whole loan. This amount is generally fixed for the loan term (though it can be revised for floating-rate loans), and it is called EMI. Every EMI consists of two parts: principal and Interest.
Principal is your borrowed amount, and interest is the percentage that you need to pay to the lender. In the starting EMIs, a large portion goes towards interest payment. The interest component gradually decreases, and the principal repayment portion increases.
This formula contains important factors like the principal amount, rate of interest, and the number of years/month.
Let's see how EMI is calculated with the example of Ayaan.
Ayaan takes a personal loan of ₹5,00,000. The bank is charging 12% interest on the loan for 5 years. So let's calculate how much EMI Ayaan has to pay.
EMI =
P = Principal amount = ₹5,00,000
R = Monthly interest rate = 12% ÷ 12 = 1% per month = 0.01
N = Number of monthly instalments = 5 × 12 = 60
if the annual interest rate is 12%, then R = 12% ÷ 12 = 1% per month (0.01). A 5-year loan with monthly EMIs will have N = 60.
EMI = [₹5,00,000 × 0.01 × (1+0.01)^60] / [(1+0.01)^60-1]
= ₹5,000 × [( 1.01)^60 / (1.01)^60-1]
= ₹5,000 × 1.816696 / 1.816696 - 1
= ~11,122.
That means Ayaan has to pay ~11,122 every month until his loan is completed.
Note: See, the EMI formula works only when the interest rate and repayment period are expressed in the same unit. But Most loans have monthly EMIs; the annual interest rate should be converted into a monthly rate, and the tenure must be converted into months.
When you get a loan, you are liable to repay it within a specific time. But many times people do not have that large an amount to repay in one go. That time EMI comes in frame. The things that decide your EMI amount are the interest rate, the principal amount, and the time period of loan tenure. If the principal amount or interest rate increases, the EMI generally increases, while a longer tenure generally reduces the EMI, assuming other factors remain unchanged. You can compare loan options when you know how EMI is calculated. Plan your finances better, and choose a repayment schedule that suits your budget. So before taking any loan, always check the total interest payable, processing charges, and repayment terms. So that you avoid financial stress and make informed borrowing decisions.
EMI (Equated Monthly Instalment) is the periodic payment you make to repay a loan, generally consisting of principal and interest. It's usually fixed for fixed-rate loans, though it may be revised for floating-rate loans.
There is a formula,
EMI =
The EMI is calculated using the formula. It is the amount you pay each month to repay the loan. EMI is influenced by the interest rate, principal, and the loan period.
If your loan tenure is longer, it can definitely reduce your EMI amount. Because if your tenure is shorter, you need to pay more money as EMI to pay the loan faster.
There are options like extending the tenure, refinancing, negotiating a lower interest rate, or making part-prepayments available in the market. This helps reduce the EMI.
Interest is the percentage that you pay on your loan to the lender for using the money, and the EMI is the fixed monthly amount that you pay to the lender to repay it.
To know your EMI, you don't need a pen and paper for calculation. You can calculate it within a minute online with free tools and platforms.
Yes, prepayment can reduce the outstanding loan amount, which may lower your EMI or shorten the loan tenure, depending on the lender's policy.
No, the processing fee is usually charged separately and is not included in the EMI amount.
Calculating EMI helps you understand your repayment obligation, compare loan offers, and choose a loan that fits your budget.
