The EMI Formula, Explained With Real Numbers

The exact EMI formula, a worked example on a 1,000,000 loan at 18%, and why the first year is almost all interest.

2026-10-02 · Finance

The formula

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the principal, r the monthly rate (annual ÷ 12 ÷ 100) and n the number of months.

A worked example

Borrow 1,000,000 at 18% for 5 years. r = 0.015 and n = 60. The instalment comes to 25,393. Multiply by 60 and the total repayment is 1,523,606 — interest of 523,606, roughly half the principal again.

Why the split changes every month

Interest is charged on the outstanding balance. Month one: 15,000 of interest, 10,393 of principal. Month sixty: about 375 of interest, 25,018 of principal. The payment is fixed; the split is not.

What the formula does not include

Processing fees, insurance and taxes. Add them to P or treat them as a separate cost — either way the effective rate rises above the quoted one.

Why does the EMI not fall when interest rates fall?

It does only if the loan is floating and repriced. A fixed-rate EMI stays the same even when market rates drop.

Is a longer tenure cheaper?

Never. It lowers the monthly figure and raises the total interest.

What is the difference between EMI and a flat rate?

A flat rate charges interest on the original amount throughout; a 10% flat rate is roughly an 18% reducing-balance rate.

Run the numbers

Loan CalculatorMonthly instalment, total interest and total repayment for any loan. Mortgage CalculatorHome loan payment with down payment and total interest. Auto Loan CalculatorCar payment, total interest and depreciation-adjusted cost.

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