How Is EMI Calculated?

By Pradipta Ray · Published 23 September 2026

Your EMI is a fixed monthly figure, but almost nothing inside it is fixed. The interest part shrinks every month and the principal part grows, which is why two loans with the same EMI can cost wildly different amounts.

Every retail loan from an Indian bank or NBFC works on a reducing balance. Each month the lender charges interest on what you still owe, takes that out of your instalment, and puts whatever is left towards the principal. Because the principal falls, next month's interest is smaller, so a slightly larger slice of the same instalment goes to the loan itself.

Work out your own EMI and see the full scheduleEMI Calculator

A worked example

Take a ten-lakh loan at 9% a year over ten years. The monthly rate is 9 divided by 12 divided by 100, which is 0.75%.

₹10,00,000 at 9% over 10 years, computed by the site's EMI engine.
	Amount
Monthly EMI	₹12,668
Total interest	₹5,20,078
Total repayment	₹15,20,078
Interest as a share of the loan	52%

₹10,00,000 at 9% over 10 years, computed by the site's EMI engine.

Now watch what one instalment is made of at three points in that loan. The EMI never changes, but its composition changes completely.

How one EMI of ₹12,668 splits at different points in a ₹10,00,000 loan at 9% over 10 years.
	Interest	Principal	Balance left
Month 1	₹7,500	₹5,168	₹9,94,832
Month 60	₹4,637	₹8,031	₹6,10,208
Month 120	₹94	₹12,493	₹0

How one EMI of ₹12,668 splits at different points in a ₹10,00,000 loan at 9% over 10 years.

In the first month, most of the instalment is interest. By the final month almost all of it is principal. This is why paying a loan off early saves so much: you are removing the months where the balance, and therefore the interest, is highest.

The three inputs, and which one matters most

Only three things determine an EMI: the amount, the rate and the tenure. People tend to negotiate hardest on the rate, but tenure has the larger effect on what the loan costs in total.

₹10,00,000 at 9% across different tenures.
Tenure	EMI	Total interest	Total repayment
3 years	₹31,800	₹1,44,789	₹11,44,789
5 years	₹20,758	₹2,45,507	₹12,45,507
10 years	₹12,668	₹5,20,078	₹15,20,078
15 years	₹10,143	₹8,25,614	₹18,25,614
20 years	₹8,997	₹11,59,454	₹21,59,454

₹10,00,000 at 9% across different tenures.

The same loan, at the same rate, costs several times more in interest at the longest tenure than at the shortest. The monthly figure looks friendlier and the loan is far more expensive. That trade-off is the single most important thing to understand before signing anything.

Why your bank's figure differs slightly

If the EMI in your sanction letter is a few rupees away from what a calculator shows, nothing is wrong. Three things cause small differences:

Rounding. Lenders round the instalment to the nearest rupee, and adjust the final instalment so the balance clears exactly.
Accrual basis. Some lenders compute interest daily on a 365-day year rather than as a flat monthly rate.
Disbursal date. If the loan is disbursed mid-month, the first instalment may include broken-period interest.

A difference of a rupee or two per instalment is normal. A difference of hundreds is not - check whether the quote is a flat rate rather than a reducing one, which is covered in reducing balance vs flat rate.

What the EMI does not include

The instalment covers interest and principal, and nothing else. Processing fees, documentation charges, stamp duty, property insurance and loan protection cover are all billed separately, usually upfront and often deducted from the amount disbursed to you. The EMI is still calculated on the full sanctioned amount.

That matters when you compare two offers. A lender quoting a marginally lower rate with a much higher processing fee can be the more expensive one, and the EMI will not tell you.

What to do with this

Run your actual numbers through the EMI Calculator and look at the total interest, not just the monthly figure.
Compare tenures on total cost before picking the one with the comfortable instalment.
Ask the lender for the amortisation schedule. On a genuine reducing-balance loan the interest column falls every month.
Check what the processing fee is, and whether it is deducted from the disbursal.

Frequently asked questions

Is EMI calculated on a reducing balance in India?

For retail loans from banks and NBFCs, yes. Interest is charged each month on the outstanding balance. Some consumer durable and two-wheeler finance uses a flat rate instead, which costs considerably more at the same quoted percentage.

Does the EMI change during the loan?

On a fixed-rate loan, no. On a floating-rate loan the lender usually keeps the EMI the same and adjusts the tenure when the benchmark moves, though you can normally ask for the EMI to be revised instead.

Why is the first EMI mostly interest?

Because interest is charged on the outstanding balance, and at the start the balance is at its highest. As the principal falls, the interest portion falls with it.