ReckonBoxHow the EMI calculator works
An EMI, or equated monthly installment, is the fixed amount you pay a lender every month until a loan is cleared, made up of interest on the balance still owed plus a slice of the principal. This calculator takes your loan amount, the interest rate and the tenure, then shows the EMI, the total interest, a year-by-year schedule, what the same loan would cost at a flat rate, and what paying a little extra each month would save. Enter the rate your bank quotes and it works for a home, car, personal, two-wheeler or gold loan alike.
On the default numbers the cost of borrowing is clear. A ₹10,00,000 loan at 9% for 10 years has an EMI of ₹12,668, and across 120 months you repay ₹15,20,160, of which ₹5,20,160 is interest. Stretch the tenure and the EMI falls but the total interest climbs, which is the trade every borrower makes.
The EMI formula
EMI is P times r times (1 + r) to the power n, all divided by (1 + r) to the power n minus 1, where P is the loan amount, r the monthly rate and n the number of months. The monthly rate is the annual rate divided by 12 and by 100, so 9% a year is 0.0075 a month. Feed in ₹10,00,000, 0.0075 and 120 and the formula returns ₹12,668, the same figure the bank calculators show.
Interest each month is charged only on the balance you still owe, which is why this is called the reducing-balance method. As you chip away at the principal, the interest part of each EMI shrinks and the principal part grows, even though the EMI itself never changes.
The year-by-year schedule
A loan amortization schedule is a table that splits every EMI into its interest and principal parts and tracks the balance falling to zero. Early in the loan the balance is large, so most of each EMI is interest; late in the loan the balance is small, so most of it is principal. On the default loan the first year pays ₹87,377 of interest and only ₹64,639 of principal. By the final year it is almost all principal: ₹1,44,783 against just ₹7,152 of interest.
The schedule above lays this out one year at a time, and it explains why checking the balance halfway through a loan can be a shock. Five years into this one:
- You have paid ₹7,60,080 in EMIs.
- Just under half of that, ₹3,70,288, went to interest rather than to the loan.
- The balance is still ₹6,10,208, so you have cleared 39% of the principal in 50% of the term.
Flat rate or reducing rate
A reducing-rate loan charges interest only on the outstanding balance, while a flat-rate loan charges interest on the full amount for the whole tenure, so a flat rate always costs more. Lenders sometimes quote a flat rate because the number looks smaller. The equivalent reducing rate is always higher, and how much higher depends on the tenure. This calculator shows both so the gap is impossible to miss.
| Method | EMI | Total interest (₹10L, 9%, 10 yr) |
|---|---|---|
| Reducing balance | ₹12,668 | ₹5,20,160 |
| Flat rate | ₹15,833 | ₹9,00,000 |
There is no single multiplier
A common rule of thumb says a flat rate is about 1.8 times the reducing equivalent. It holds for short tenures and breaks down over long ones, because a flat rate charges the same interest in year ten as in year one while a reducing balance has almost nothing left to charge on. Solving for the reducing rate that produces the same EMI:
| Flat rate | 2 years | 5 years | 10 years | 20 years |
|---|---|---|---|---|
| 8% | 14.7% | 14.1% | 13.1% | 11.7% |
| 10% | 18.2% | 17.3% | 15.9% | 14.1% |
| 12% | 21.6% | 20.3% | 18.5% | 16.3% |
So 12% flat is about 21.6% reducing over two years, but about 18.5% over ten. Any conversion quoted without a tenure beside it is incomplete.
Nominal or effective
Published figures for the same flat rate often disagree, and the reason is usually the convention rather than an error. A 10% flat rate over two years is 18.2% as a nominal annual rate and 19.7% as an effective annual rate, which compounds the monthly figure over the year. Both describe the same loan. If two sources hand you 18% and 20% for the same deal, they are probably not contradicting each other.
Where flat rates actually turn up
Flat rates are quoted on a particular set of products rather than across the board:
- Electric two-wheeler and e-rickshaw loans
- Consumer durable finance on appliances and phones
- Rooftop solar loans
- Some MSME and small business lending
Every one of those is a short-tenure product, which is where the gap between the flat rate and its reducing equivalent is widest. Convert the quote before setting it beside anything priced the normal way.
What prepaying saves
Because interest is charged on the balance you still owe, any extra you pay cuts that balance and every future interest charge on it, so the loan ends sooner. Add an extra amount to the EMI in the calculator and it shows the months and the interest that disappear. On the default ₹10,00,000 loan, paying ₹5,000 extra a month clears it in about 74 months instead of 120 and saves roughly ₹2,13,700 of interest.
Timing matters more than most borrowers expect. The same ₹1,00,000, paid once as a lump sum:
| Paid at | Interest it saves | Loan ends at |
|---|---|---|
| Month 12 | ₹1,11,219 | 104 months |
| Month 96 | ₹16,021 | 111 months |
Seven times the saving for the identical rupee. Paid in year one, it removes interest on a balance that still has nine years to run; paid in year eight, there are two years left and very little to cancel. Worth knowing before a bonus lands.
Prepayment charges are gone on most new loans
The RBI barred lenders from levying pre-payment charges on floating-rate loans taken by individuals for any purpose other than business, for loans sanctioned or renewed on or after 1 January 2026. The limits of the rule matter as much as the rule:
- It applies irrespective of where the money came from, and to part prepayment as well as full foreclosure.
- There is no minimum lock-in, so a lender cannot require you to run the loan for a year first.
- It covers floating-rate loans only. A fixed-rate loan sits outside it, and on a dual-rate loan what counts is which rate applies on the day you prepay.
- It binds loans sanctioned or renewed on or after 1 January 2026. An older loan keeps the terms it was written on.
- Business-purpose loans to individuals and small enterprises are covered too at commercial banks and the larger NBFCs. At small finance banks, regional rural banks and the smaller co-operatives and NBFCs that cover stops at a sanctioned limit of ₹50 lakh.
So on a new floating-rate loan, the interest the calculator says you save is the interest you keep. On an older loan, or a fixed-rate one, read the sanction letter: the same directions require the position on pre-payment charges to be disclosed there.
What this does not promise
The EMI here uses the reducing-balance math every bank uses, but a real loan can carry a processing fee, insurance, or a floating rate that moves with the market, none of which are in the monthly figure. Prepayment charges are not modelled either, though as set out above, most new floating-rate loans to individuals can no longer carry them. Loan approval depends on your income, credit history and the lender's rules, so a comfortable EMI on screen is not an offer. This is a planning tool, not financial advice, so confirm the exact terms with your bank and, for a large loan, a qualified adviser. For the loan types that carry their own rules, a home loan with its 24(b) and 80C relief, a car loan priced from the on-road figure and a personal loan with its fee and foreclosure charges each build on this same formula.
Frequently asked questions
What is an EMI calculator? An EMI calculator works out the fixed monthly installment on a loan from the amount, the interest rate and the tenure, using the reducing-balance formula that Indian banks apply. A ₹10,00,000 loan at 9% for 10 years has an EMI of ₹12,668, with ₹5,20,160 of total interest.
What is the EMI formula? The EMI formula is EMI = P times r times (1 + r) to the power n, divided by (1 + r) to the power n minus 1, where P is the loan amount, r is the monthly rate (the annual rate divided by 12 and by 100), and n is the number of months. The interest each month is charged on the balance still outstanding, which is why it is called the reducing-balance method.
What is the difference between a flat rate and a reducing rate? A reducing-rate loan charges interest only on the outstanding balance, which falls every month, while a flat-rate loan charges interest on the full amount for the whole tenure. A flat rate therefore costs far more: on ₹10,00,000 at 9% for 10 years the reducing EMI is ₹12,668 against a flat EMI of ₹15,833. The conversion between the two depends on the tenure, so a 12% flat rate is about 21.6% reducing over two years but about 18.5% over ten.
How does prepaying a loan save money? Because interest is charged on the outstanding balance, paying extra reduces that balance and every future interest charge on it, so the loan finishes sooner. Adding ₹5,000 a month to the EMI on a ₹10,00,000 loan at 9% clears it in about 74 months instead of 120 and saves roughly ₹2,13,700 of interest.
How is the EMI split between principal and interest? Each EMI is the same, but its make-up changes: early on most of it is interest because the balance is large, and later most of it is principal as the balance shrinks. The year-by-year schedule above shows this split and the balance left at the end of each year.
Does this work for home, car and personal loans? Yes, the reducing-balance EMI math is the same for a home loan, car loan, personal loan, two-wheeler loan or gold loan; only the rate and tenure differ. Enter your loan amount, the rate your bank quotes, and the tenure, and the EMI and schedule apply to any of them.
Can a lender charge me for prepaying my loan? On a floating-rate loan taken by an individual for a purpose other than business, no. The RBI barred pre-payment charges on those loans for anything sanctioned or renewed on or after 1 January 2026, irrespective of the source of the funds, for part prepayment as well as full foreclosure, and with no minimum lock-in period. Fixed-rate loans are outside the rule, and a loan sanctioned before that date keeps its original terms.
When is the best time to prepay a loan? As early as you can, because the saving falls away quickly. A single ₹1,00,000 payment on a ₹10,00,000 loan at 9% over 10 years saves ₹1,11,219 of interest if it lands in month 12, but only ₹16,021 if it lands in month 96. The early payment removes interest on a balance with nine years still to run, while the late one leaves only two years of charges to cancel.
What EMI can I afford? Lenders often look for the total of your EMIs to stay within about 40% to 50% of your monthly income, though the exact limit is theirs to set. This calculator shows the EMI for a given loan; whether it fits your budget depends on your income and other commitments, so treat the figure as a planning input.
Sources
- Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025
- KnowYourEMI, flat and reducing rates have no universal multiplier
- Ecofy, the products quoted at flat rates
- Reserve Bank of India, lending and interest rate framework
- SEBI investor education, EMI calculator
- EMI Calculator, reducing-balance formula and worked example