EMI Calculations and Checklists
How to calculate personal loan EMI: formula, amortisation and worked examples
The reducing-balance EMI formula Indian lenders use, step-by-step arithmetic, how each EMI splits into interest and principal, and checklists for every personal loan sum.
A personal loan EMI in India is calculated on a reducing balance: EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan amount, r is the annual interest rate divided by 12 and by 100, and n is the number of monthly instalments. For an illustrative ₹5 lakh at 12% for 3 years, r = 0.01 and n = 36, giving an EMI of about ₹16,607 and total interest of about ₹97,858. Each EMI is the same, but early EMIs are mostly interest and later ones mostly principal. Fees, GST and insurance are not in the EMI, so look at the APR and total outgo as well.
This is the overview for the EMI Calculations and Checklists section; it links to every guide here.
The formula step by step
Take the illustrative ₹5,00,000 at 12% a year for 36 months.
- Monthly rate r = 12 ÷ 12 ÷ 100 = 0.01.
- (1 + r)^n = 1.01^36 ≈ 1.43077.
- Numerator = 5,00,000 × 0.01 × 1.43077 ≈ 7,153.84.
- Denominator = 1.43077 − 1 = 0.43077.
- EMI ≈ 7,153.84 ÷ 0.43077 ≈ ₹16,607.
- Total paid = 16,607 × 36 ≈ ₹5,97,858, so total interest ≈ ₹97,858.
You can repeat this on a phone calculator, a spreadsheet (=PMT(12%/12,36,-500000)) or the personal loan EMI calculator.
How each EMI splits
Interest for a month = outstanding balance × r. The rest of the EMI repays principal.
| Month | Interest | Principal | Balance after EMI |
|---|---|---|---|
| 1 | ₹5,000 | ₹11,607 | ₹4,88,393 |
| 2 | ₹4,884 | ₹11,723 | ₹4,76,670 |
| 3 | ₹4,767 | ₹11,840 | ₹4,64,829 |
| 36 | ₹164 | ₹16,443 | ₹0 |
By year:
| Year | Interest paid | Balance at year end |
|---|---|---|
| 1 | about ₹52,078 | about ₹3,52,792 |
| 2 | about ₹33,408 | about ₹1,86,915 |
| 3 | about ₹12,371 | ₹0 |
More than half the interest is paid in the first year. That is why prepaying or switching early saves the most, as shown in the part-prepayment guide and the balance transfer guide.
What the EMI does not include
| Cost | Where it appears | How to count it |
|---|---|---|
| Processing fee + 18% GST | KFS; deducted at disbursal | Add to total outgo; raises APR |
| Stamp duty, documentation | KFS | Add to total outgo |
| Insurance premium | KFS; deducted or financed | If financed, it is inside a larger EMI |
| Broken-period interest | First EMI or deducted upfront | Interest for days before the first full cycle |
| Penal and bounce charges | Only if you pay late | Avoid by keeping the EMI account funded |
Total outgo = EMI × n + upfront charges. For the example with ₹13,300 of upfront charges, total outgo is about ₹6,11,158. Work out the deductions with the processing fee and GST calculator.
The calculations in this section
| Question | Guide |
|---|---|
| Is a flat rate cheaper than a reducing rate? | Flat rate versus reducing balance |
| Should I take 2, 3 or 5 years? | Choosing a tenure |
| How much can I borrow on my salary? | Eligibility and FOIR |
| Which of three offers is cheapest? | Comparing offers on APR |
| Should a lump sum cut my EMI or tenure? | Part-prepayment |
| Does switching lenders or a top-up pay? | Balance transfer and top-up |
| What do I need to apply? | Documents checklist |
A simple affordability check
Before you choose a loan amount, check the EMI against your monthly budget:
- Net monthly income after tax and deductions noted
- All existing EMIs and credit card minimum dues listed
- Rent or home loan, school fees, insurance premiums and household costs listed
- New EMI added: does a margin remain for emergencies?
- Could you pay the EMI for three months if your income stopped?
- The EMI date falls soon after your salary credit
Many lenders cap all EMIs at around half of net income for salaried borrowers, but the right limit for your household may be lower. The eligibility guide explains the lender's view.
Common calculation mistakes
- Using a flat rate in the EMI formula. A "10% flat" rate is far more expensive than 10% reducing.
- Forgetting the fee. The EMI is the same with a 0% or 3% fee, but the cost is not.
- Comparing EMIs over different tenures. A lower EMI over a longer tenure usually means more interest.
- Ignoring the first EMI date. Broken-period interest can make the first payment larger.
Frequently asked questions
Do all lenders use the same EMI formula?
Banks and NBFCs use the reducing-balance method for personal loans. Small differences can come from rounding, the day-count convention and broken-period interest.
Why does the KFS show a slightly different EMI from my calculation?
Rounding, day counts or broken-period interest. The KFS repayment schedule is the binding figure; ask the lender to explain a large difference.
Does a floating-rate loan have a fixed EMI?
Only until the next reset. After a reset the lender recalculates the EMI or the tenure; see fixed versus floating rates.
Is the EMI the same as the APR?
No. The EMI is the monthly payment; the APR is the annual cost including fees.
Sources
- Reserve Bank of India — KFS circular requiring the repayment schedule and APR
- RBI Kehta Hai — RBI consumer awareness on loans
- RBI Complaint Management System — if the schedule you were given is not followed
