Every EMI (Equated Monthly Installment) you've ever paid — on a home loan, car loan, or personal loan — was computed using the same formula, regardless of which bank or NBFC issued it. Once you understand it, you can verify any lender's quote yourself in under a minute.
The EMI formula
EMI = P × r × (1 + r)ⁿ / ((1 + r)ⁿ − 1), where P is the principal (loan amount), r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the total number of monthly installments (tenure in years × 12).
This is a reducing-balance formula: it charges interest only on whatever principal is still outstanding each month, not on the original loan amount for the entire tenure. That's why the interest portion of your EMI is highest in month one and falls every month after that, even though the EMI itself stays constant.
Worked example
Take a ₹5,00,000 loan at 10% annual interest for 5 years. Monthly rate r = 10 / 12 / 100 = 0.008333. Number of installments n = 5 × 12 = 60.
| Step | Calculation | Result |
|---|---|---|
| (1 + r)ⁿ | (1.008333)^60 | 1.6453 |
| Numerator | P × r × (1+r)ⁿ = 500000 × 0.008333 × 1.6453 | 6,855.4 |
| Denominator | (1+r)ⁿ − 1 = 1.6453 − 1 | 0.6453 |
| EMI | Numerator ÷ Denominator | ≈ ₹10,624 |
Over 60 months, total repayment is ₹10,624 × 60 = ₹6,37,440, meaning total interest paid is ₹1,37,440. You can verify this instantly — with your own numbers — using our free EMI calculator above.
Why the same loan can show a slightly different EMI at two banks
- Day-count convention — some lenders use 30/360, others use actual days in the month, causing tiny rounding differences.
- Whether the rate is compounded monthly or in some other period.
- Processing fees and insurance premiums bundled into the disbursed amount, which changes the effective principal.
None of these change the core formula — they just adjust the effective principal or rate slightly. Always ask for the loan's APR (Annual Percentage Rate) to compare offers on a like-for-like basis.