Calculate your monthly EMI, total interest and payment schedule
| Year | Principal (₹) | Interest (₹) | Balance (₹) |
|---|
Equated Monthly Installment - EMI for short - is the amount payable every month to the bank or any other financial institution until the loan amount is fully paid off. It consists of the interest on loan as well as part of the principal amount to be repaid. The sum of principal amount and interest is divided by the tenure, i.e., number of months, in which the loan has to be repaid. This amount has to be paid monthly. The interest component of the EMI would be larger during the initial months and gradually reduce with each payment.
The EMI calculation formula is based on the reducing balance method:
EMI = [P × R × (1+R)^N]/[(1+R)^N-1]
Where:
Your EMI amount is primarily determined by three factors: the loan amount, the interest rate, and the loan tenure. Higher loan amounts or interest rates will increase your EMI, while longer tenures will reduce your EMI (but increase total interest paid).
Prepaying part of your loan reduces the principal amount, which can either reduce your EMI (if tenure remains same) or shorten your loan tenure (if EMI remains same). Most banks in India allow partial prepayments after a lock-in period, usually with some charges.
Fixed rates remain constant throughout the loan tenure, while floating rates change based on market conditions (like RBI repo rate changes). Fixed rates provide certainty but are usually higher than initial floating rates. Floating rates may be cheaper initially but carry the risk of future increases.
You can reduce total interest by: 1) Opting for a shorter tenure (higher EMI but less interest), 2) Making partial prepayments when possible, 3) Negotiating for a lower interest rate, or 4) Choosing loans that allow interest-only payments during initial periods (for business loans).