An EMI, or equated monthly instalment, is the fixed amount you repay each month on a term loan. It looks simple on a loan offer, but three numbers decide it: the amount borrowed, the interest rate and the number of months. This guide explains how those numbers combine, what changes when rates move, and which documents RBI rules say your lender must give you. The worked figures below are an example we calculated, not a quote from any lender.
The three inputs
- Principal: the amount you actually borrow, after any down payment.
- Interest rate: the yearly rate. For EMI maths it is turned into a monthly rate by dividing by 12.
- Tenure: the number of monthly instalments. Twenty years is 240 months.
Fees are not part of the EMI formula, but they are part of what the loan costs you. That is why the RBI Key Facts Statement, covered below, matters as much as the EMI figure.
The formula
Lenders use the standard reducing-balance formula. With P as the principal, r as the monthly interest rate (yearly rate divided by 12, as a decimal) and n as the number of months:
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
You do not need to work this out by hand. Any spreadsheet can do it, and your lender's sanction documents should show the figure. Knowing the formula helps you understand why small changes in rate or tenure move the EMI and the total interest so much.
A worked example
Example only: a loan of ₹10,00,000 at 9% a year for 20 years (240 months). The monthly rate is 0.75%. The formula gives an EMI of about ₹8,997. Over 240 months you would repay about ₹21.59 lakh, so about ₹11.59 lakh of that is interest.
In the first month, interest on ₹10 lakh at 0.75% is ₹7,500. Only about ₹1,497 of the first EMI reduces the principal. As the balance falls, the interest part shrinks and the principal part grows. This is why a long loan feels slow to pay down in the early years, and why part-prepayments early in the loan save the most interest.
Tenure and rate: the trade-off
Using the same ₹10 lakh example, here is what changes (our calculation, rounded):
- 9% for 10 years: EMI about ₹12,668; total interest about ₹5.20 lakh.
- 9% for 15 years: EMI about ₹10,143; total interest about ₹8.26 lakh.
- 9% for 20 years: EMI about ₹8,997; total interest about ₹11.59 lakh.
- 9.5% for 20 years: EMI about ₹9,321; total interest about ₹12.37 lakh.
A longer tenure lowers the EMI but raises the total interest sharply. Half a percentage point on a 20-year loan adds about ₹78,000 of interest in this example. Our advice is to choose the shortest tenure whose EMI you can still pay comfortably in a bad month, not just a good one.
When a floating rate goes up
Many loans have a floating rate linked to a benchmark. When the benchmark rises, the lender can either raise your EMI or keep the EMI and extend the tenure. In the example above, if the rate rose from 9% to 9.5% and the EMI stayed at ₹8,997, the loan would run for about 269 months instead of 240, more than two extra years.
RBI's instructions on resetting floating interest rates on EMI-based personal loans (first issued 18 August 2023, updated to 1 October 2025) say lenders must:
- explain at sanction how a benchmark change could affect your EMI, tenure or both, and tell you immediately when either goes up;
- let you choose, at reset, a higher EMI, a longer tenure or a mix of both, and let you prepay in part or in full at any time (existing prepayment rules on charges still apply);
- not extend the tenure so far that it causes negative amortisation, where your balance grows because the EMI no longer covers the interest;
- give you a simple quarterly statement showing principal and interest recovered so far, the EMI, the EMIs left and the annualised rate for the full tenure.
Since 1 October 2025, offering a switch to a fixed rate at reset is at the lender's option under its board-approved policy, not compulsory. If a switch is offered, the charges must be disclosed. Ask your lender what applies to your loan.
Read the Key Facts Statement before you sign
RBI's Key Facts Statement circular of 15 April 2024 applies to retail and MSME term loans sanctioned from 1 October 2024 by banks, NBFCs (including housing finance companies) and co-operative banks. It does not cover credit card dues. Under it, the lender must give you a Key Facts Statement (KFS) in a standard format and a language you understand, before you sign the loan agreement.
The KFS must include the Annual Percentage Rate (APR), which is the yearly cost of the loan including the interest and all other charges, and a repayment schedule for the whole tenure. A lender cannot charge a fee that is not in the KFS without your explicit consent. For loans of seven days or longer, the KFS stays valid for at least three working days, so you have time to compare offers.
Our advice: compare loans by APR and total repayment, not by the headline rate or the EMI alone. A low rate with high processing and insurance charges can cost more than a slightly higher rate with low fees.
Practical checks before you borrow
- Work out the EMI yourself in a spreadsheet and match it to the KFS repayment schedule.
- Ask whether the rate is fixed, floating or hybrid, and which benchmark a floating rate follows.
- Check processing fees, insurance bundled with the loan and prepayment or foreclosure charges in the KFS.
- Keep a buffer: an EMI that only fits your budget when nothing goes wrong is too high.
- For shopping EMIs, read our no-cost EMI guide; for plot purchases, see the plot loan guide.
Quick checklist
- I know the principal, rate, tenure and the EMI they produce.
- I have read the KFS and compared offers by APR and total repayment.
- I know what happens to my EMI or tenure if a floating rate rises.
- I know the prepayment terms and plan to prepay early where I can.
Sources
Official material checked on 17 October 2026. The EMI figures are our own example calculations using the standard formula, not offers from any lender.
