HaatBeatHow it's calculated
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
P is the loan amount, r is the annual rate divided by 12, and n is the number of monthly payments. At 0% the payment is simply P ÷ n.
Assumptions
- The rate stays the same for the whole loan.
- Payments are equal and made at the end of each month; the last one clears any rounding residual.
- Fees, insurance and prepayments are not included.
Worked example
A loan of 10 lakh rupees at 10% a year over 5 years has a monthly payment of about 21,247 rupees. Over the 60 payments that is about 2.75 lakh rupees of interest.
Questions
Why is most of the early payment interest?
Interest is charged on the balance still owed. The balance is highest at the start, so early payments are mostly interest and later ones mostly principal.
Why does my lender show a slightly different figure?
Lenders may round each payment, add fees, or start interest from the disbursal date rather than a full month before the first payment.
Does a longer tenure save money?
It lowers the monthly payment but usually raises the total interest, because the balance is outstanding for longer.