How EMI is actually calculated
The formula behind every EMI calculator, and why your early instalments are almost all interest.
4 min read
What you need to know
EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1), where P is the principal, r the monthly rate (annual rate ÷ 12 ÷ 100) and n the number of months. The instalment stays constant, but its composition does not.
In the first year of a 20-year home loan, close to 80% of each EMI is interest. That is why a prepayment made in year three saves far more than the same amount paid in year fifteen.
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Frequently asked questions
What is the main takeaway from “How EMI is actually calculated”?
The formula behind every EMI calculator, and why your early instalments are almost all interest.
What should I check before acting on this loan basics guide?
Review the practical points in the guide against your income, obligations, documents and lender requirements.
Can the information in this guide guarantee loan approval?
No. It is general educational information. A bank or NBFC makes the final decision after checking your credit profile, repayment capacity, documents and the applicable product policy.
How can iFINTRUST help after I read this guide?
An iFINTRUST advisor can review your requirement, explain the documents normally requested and help you compare suitable lending options before you apply.