An EMI — Equated Monthly Installment — is the fixed amount you pay each month toward a loan until it's paid off. It feels like a simple number, but it's calculated from a formula that accounts for compounding interest, and understanding it makes it much easier to judge whether a loan offer is actually a good deal.
The formula
EMI = P × R × (1 + R)N / ((1 + R)N − 1)
Where P is the principal (the amount borrowed), R is the monthly interest rate (the annual rate divided by 12, then by 100), and N is the total number of monthly installments (years × 12).
A worked example
Say you borrow 500,000 at a 9% annual rate over 5 years. The monthly rate R is 9 ÷ 12 ÷ 100 = 0.0075, and N is 60 months. Plugging into the formula gives an EMI of roughly 10,379 per month — a total repayment of about 622,740, meaning about 122,740 of that is interest.
Why the EMI stays the same but the interest portion doesn't
Even though the monthly payment is fixed, the split between interest and principal inside each payment changes over time. Early payments are mostly interest, since the outstanding balance is still large; later payments are mostly principal, since there's less balance left to charge interest on. This is why paying off a loan even slightly early can save more interest than it might seem — you're skipping the highest-interest-content payments at the end less, and the principal-heavy ones toward the end more... in practice, extra payments made early in the loan save the most interest, since they reduce the balance that all future interest is calculated on.
Try it yourself
The EMI Calculator runs this exact formula live as you adjust the loan amount, rate and term, and shows the total interest paid alongside the monthly figure — useful for comparing two loan offers with different rates and terms side by side.