An Equated Monthly Instalment (EMI) is a fixed monthly payment that you make to a lender to repay a loan over a specified period. Each EMI includes a portion of the principal (the borrowed amount) and the interest (the cost of borrowing). EMI helps spread large loan payments into manageable monthly amounts.

How EMI Works

• You borrow a loan amount from a lender (bank, NBFC, etc.).
• You agree on an interest rate and a repayment period (tenure).
• Each month, you pay the EMI covering both principal and interest.
• Early in the schedule, more of the EMI goes toward interest; later, more goes toward principal.

EMI Calculation Formula

The standard formula to calculate an EMI is:

• P – Principal loan amount (what you borrow).
• R – Monthly interest rate (annual rate ÷ 12 ÷ 100).
• N – Loan tenure in months.

Example of EMI Calculation

Suppose you borrow ₹50,000 at an annual interest rate of 12% for 12 months. The monthly rate (r) becomes 0.01. Plugging into the formula gives an EMI of approximately ₹4,435 per month.

Why EMIs Are Used

• They make large expenses affordable by breaking them into monthly payments.
• EMIs help with financial planning and budgeting.
• Institutes a structured repayment schedule.

Factors Affecting Your EMI

• Loan Amount: A higher amount increases your monthly EMI.
• Interest Rate: Higher interest increases your EMI and total cost.
• Loan Tenure: Longer tenure lowers your EMI but increases total interest.