EMI

An EMI (equated monthly instalment) is the fixed amount you pay every month until a loan is cleared. Indian banks and NBFCs work it out with the reducing-balance formula, EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1), where P is the amount borrowed, r is the monthly rate (annual rate ÷ 12 ÷ 100) and n is the number of months. You can run it for any loan in the EMI Calculator.

The instalment stays the same, but what it pays for does not. Early on, most of each EMI is interest, because interest is charged on a large outstanding balance. As the balance falls, the interest share shrinks and more of the same EMI goes to the principal. That is why a prepayment in the first few years saves far more interest than the same amount paid near the end, and why an amortisation schedule is worth reading before you sign.

Two things change the real cost more than people expect. A flat rate charges interest on the original amount for the whole tenure, so a flat 10% costs much more than a 10% reducing rate; the flat vs reducing rate calculator shows the gap. And a longer tenure lowers the EMI but raises the total interest, often by lakhs on a home loan. The guides below walk through each of these with worked Indian examples.