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How EMI Is Calculated and How to Lower It
Understand the loan EMI formula with a real example and learn simple ways to pay less interest.
By the ToolWorlds team · Updated 2026-10-29
What EMI means
EMI stands for equated monthly instalment. It is the fixed payment you make each month until a loan is cleared. Part of each payment is interest and part repays the loan amount.
The formula
EMI = P x r x (1+r)^n / ((1+r)^n - 1). P is the loan amount, r is the monthly interest rate (yearly rate divided by 12 and by 100) and n is the number of months.
Example
Take a loan of 1,000,000 at 10% a year. Over 5 years the EMI is about 21,247, and you repay about 1,274,800 in total, so interest is about 274,800. Over 3 years the EMI is about 32,267, and the total is about 1,161,600, so interest is about 161,600. The shorter loan costs roughly 113,000 less in interest, although the monthly payment is higher.
How to lower the cost
- Pick the shortest tenure whose EMI you can comfortably afford.
- Increase your down payment so you borrow less.
- Compare interest rates and fees from several banks.
- Ask whether you can repay early and what the charge is.
Check before you sign
Make sure the loan uses a reducing balance and ask for the full list of charges, such as processing fees and insurance. Flat-rate offers look cheaper than they are. Enter your own numbers into the Loan EMI Calculator and compare several tenures side by side. For other figures, try the Percentage Calculator.