How an EMI is calculated
The reducing-balance formula behind most loan installments.
An equated monthly installment (EMI) is a fixed payment that covers both interest and a slice of the principal. Early payments are mostly interest; later ones are mostly principal, because interest is charged on the balance still owed.
The formula is EMI = P × r × (1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the monthly rate (annual rate ÷ 12 ÷ 100) and n is the number of months.
A longer tenure lowers the EMI but raises total interest. When comparing offers, look at total cost including fees, not just the monthly figure. Some lenders use flat-rate quotes that look lower but cost more; ask for the reducing-balance rate.
Published by RADO Technology. General information, not professional advice.