Borrow ₹10 lakh at 11% for five years and you will owe the lender ₹21,742 every month. By the time the last instalment clears, about ₹3.05 lakh of what you paid will have been interest. Both numbers come from one equation, EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1], where P is the loan amount, r the monthly interest rate (annual rate ÷ 12 ÷ 100) and n the number of monthly instalments. Run it once by hand and the monthly figure of ₹21,742 stops being a black box. So does the real cost of a longer tenure or an early prepayment.
Key takeaways
- The formula takes the amount borrowed, the monthly rate and the tenure in months. Nothing else.
- A ₹10,00,000 loan at 11% over 60 months costs ₹21,742.42 a month. You repay ₹13,04,545 in all, and ₹3,04,545 of that is interest.
- The early instalments are mostly interest: ₹1,02,154 of the ₹2,60,909 paid in year 1, against ₹14,903 in year 5.
- Stretching the loan from five to seven years at 11% trims the EMI by ₹4,620 and adds ₹1,33,740 to the interest bill.
- Excel and Google Sheets give the same EMI with
=PMT(11%/12, 60, -1000000). - Prepaying ₹1 lakh after month 12, while keeping the EMI unchanged and letting the tenure shrink, saves ₹50,789 in interest.
What is the EMI formula?
An equated monthly instalment, or EMI, is a fixed payment. Each one covers that month’s interest and chips away at the principal, so the final instalment leaves the balance at zero. The maths behind it is the standard reducing-balance (amortising) loan formula:
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
What each letter stands for
| Symbol | What it means | How to get it | Example value |
|---|---|---|---|
| P | Principal: the amount you borrow | Sanctioned loan amount, after any upfront deductions are accounted for separately | ₹10,00,000 |
| r | Monthly interest rate as a decimal | Annual rate ÷ 12 ÷ 100 | 11 ÷ 12 ÷ 100 = 0.0091667 |
| n | Number of monthly instalments | Tenure in years × 12 | 5 × 12 = 60 |
| (1 + r)n | Compounding factor over the full tenure | Raise (1 + r) to the power n | 1.009166760 = 1.728916 |
This is where most people trip. They plug in 11 for the rate or 5 for the tenure, and the answer comes out wildly wrong. r and n have to describe the same period, so a monthly EMI needs a monthly rate and a count of months. Microsoft’s PMT documentation carries the same warning about keeping units consistent.
How to calculate EMI step by step on a ₹10 lakh loan
Take a ₹10 lakh loan, business or personal, at 11% a year and repaid monthly over five years. The 11% is purely illustrative; no lender quoted it. We ran every figure in Python and cross-checked it against the present-value-of-annuity version of the same equation.
| Step | Calculation | Result |
|---|---|---|
| 1. Monthly rate (r) | 11 ÷ 12 ÷ 100 | 0.0091667 |
| 2. Number of months (n) | 5 × 12 | 60 |
| 3. Compounding factor | (1 + 0.0091667)60 | 1.728916 |
| 4. Numerator | 10,00,000 × 0.0091667 × 1.728916 | 15,848.39 |
| 5. Denominator | 1.728916 − 1 | 0.728916 |
| 6. EMI | 15,848.39 ÷ 0.728916 | ₹21,742.42 |
| 7. Total repaid | 21,742.42 × 60 | ₹13,04,545 |
| 8. Total interest | 13,04,545 − 10,00,000 | ₹3,04,545 |
Lenders typically round the EMI to the nearest rupee (₹21,742 in this case) and tweak the final instalment to mop up the difference. Roughly 23% of everything you hand over on this loan is interest.
Where the first instalment goes
In month one, interest is charged on the whole balance: ₹10,00,000 × 0.0091667 = ₹9,166.67. What is left of the instalment, ₹21,742.42 − ₹9,166.67 = ₹12,575.76, reduces the principal, bringing the balance down to ₹9,87,424.24. Month two’s interest is therefore a touch smaller and a touch more goes to principal. The tilt continues, month after month, until the loan is gone.
It works in dollars too
Currency makes no difference to the maths. A $20,000 loan at 7% for five years gives r = 0.0058333 and n = 60, for a monthly payment of $396.02 and $3,761.44 in total interest.
The amortisation schedule: interest versus principal, year by year
Bundle the 60 monthly rows of the ₹10 lakh, 11%, five-year loan into years and the pattern is hard to miss. Figures are rounded to the nearest rupee.
| Year | EMIs paid | Interest paid | Principal repaid | Balance at year end |
|---|---|---|---|---|
| 1 | ₹2,60,909 | ₹1,02,154 | ₹1,58,755 | ₹8,41,245 |
| 2 | ₹2,60,909 | ₹83,783 | ₹1,77,126 | ₹6,64,120 |
| 3 | ₹2,60,909 | ₹63,287 | ₹1,97,622 | ₹4,66,497 |
| 4 | ₹2,60,909 | ₹40,418 | ₹2,20,491 | ₹2,46,006 |
| 5 | ₹2,60,909 | ₹14,903 | ₹2,46,006 | ₹0 |
| Total | ₹13,04,545 | ₹3,04,545 | ₹10,00,000 | — |
Year one alone accounts for ₹1,02,154 of the ₹3,04,545 in total interest, about a third. That front-loading is why a prepayment made early does far more work than one made near the end. Indian borrowers can check their own numbers: under RBI’s August 2023 circular, lenders must send anyone with an EMI-based floating-rate personal loan a quarterly statement of the principal and interest recovered so far. Hold yours up against a schedule like this one.
How rate and tenure change your EMI
Keep the loan at ₹10 lakh and change only the annual rate and the tenure. Each cell gives the EMI first and total interest second, both rounded to the nearest rupee.
| Annual rate | 3 years (36 EMIs) | 5 years (60 EMIs) | 7 years (84 EMIs) |
|---|---|---|---|
| 9% | ₹31,800 / ₹1,44,790 | ₹20,758 / ₹2,45,501 | ₹16,089 / ₹3,51,483 |
| 10% | ₹32,267 / ₹1,61,619 | ₹21,247 / ₹2,74,823 | ₹16,601 / ₹3,94,499 |
| 11% | ₹32,739 / ₹1,78,594 | ₹21,742 / ₹3,04,545 | ₹17,122 / ₹4,38,285 |
| 12% | ₹33,214 / ₹1,95,715 | ₹22,244 / ₹3,34,667 | ₹17,653 / ₹4,82,830 |
| 13% | ₹33,694 / ₹2,12,982 | ₹22,753 / ₹3,65,184 | ₹18,192 / ₹5,28,125 |
Reading the grid
- Tenure drives the interest bill. At 11%, going from five to seven years brings the EMI down from ₹21,742 to ₹17,122 but adds ₹1,33,740 of interest. Squeeze the loan into three years and the EMI jumps to ₹32,739, while the interest falls by ₹1,25,951.
- The rate moves the EMI less than you might expect. On a five-year loan, 13% instead of 9% adds ₹1,995 to the monthly payment, about 10%. Total interest climbs by ₹1,19,683, close to half.
- Judge a loan by what it costs in total. A longer tenure can make the EMI look gentle even as the loan gets more expensive overall.
Calculating EMI in Excel or Google Sheets with PMT
You don’t need to type the formula out in a spreadsheet; both programs have a PMT function. Microsoft Support gives Excel’s syntax as PMT(rate, nper, pv, [fv], [type]), and Google Sheets takes the arguments in the same order: rate, number of periods, present value, then an optional future value and payment timing.
- Enter the loan amount in B1 (1000000), the annual rate in B2 (11%) and the tenure in years in B3 (5).
- In B4, type
=PMT(B2/12, B3*12, -B1). You should see 21,742.42. - For total interest, put
=B4*B3*12-B1in B5. It returns 3,04,545.38.
PMT has a few quirks worth knowing:
- Sign: PMT counts money going out as negative. Enter the loan as
-B1to get a positive EMI, or wrap the whole formula inABS(). - Units: divide the annual rate by 12 and multiply the years by 12, as both help pages instruct.
- Type: leave the last argument empty, or set it to 0, for EMIs paid at the end of each month, which is the usual arrangement. A 1 assumes payment at the start of the month and produces a slightly lower figure.
For a month-by-month schedule, IPMT returns each month’s interest and PPMT its principal. They take the same inputs as PMT, plus the period number. Sum them 12 rows at a time and you have the yearly table above.
How much does prepaying a loan save?
Say you put ₹1,00,000 into the ₹10 lakh, 11%, five-year loan straight after the 12th EMI, when ₹8,41,245 is still outstanding. Lenders usually offer a choice at that point: keep the EMI and finish sooner, or keep the end date and pay less each month.
| Scenario | EMI after prepayment | Total EMIs | Total interest | Interest saved |
|---|---|---|---|---|
| No prepayment | ₹21,742 | 60 | ₹3,04,545 | — |
| ₹1 lakh prepaid, same EMI, shorter tenure | ₹21,742 (last EMI ₹1,408) | 54 | ₹2,53,756 | ₹50,789 |
| ₹1 lakh prepaid, same tenure, lower EMI | ₹19,158 | 60 | ₹2,80,487 | ₹24,059 |
Finishing sooner saves roughly twice as much interest. Paying less each month, though, frees up ₹2,585 a month, and for a business with lumpy income that breathing room can be worth more.
What RBI says about prepayment charges
The RBI (Pre-payment Charges on Loans) Directions, 2025, issued on 2 July 2025, set these rules for floating-rate loans sanctioned or renewed on or after 1 January 2026:
- No regulated lender may charge an individual for prepaying a floating-rate loan taken for a non-business purpose.
- On floating-rate business loans to individuals and micro and small enterprises (MSEs), commercial banks cannot levy a charge at all. Small finance banks, regional rural banks, some co-operative banks and middle-layer NBFCs are barred from charging on loans up to ₹50 lakh. “Commercial banks” here leaves out small finance, regional rural and local area banks; the directions also cover Tier 4 urban co-operative banks, upper-layer NBFCs and All India Financial Institutions.
- Part and full prepayments are both covered, wherever the money comes from, and there is no minimum lock-in. Fixed-rate loans remain subject to each lender’s board-approved policy.
Before you prepay, read the sanction letter and the Key Fact Statement, particularly on a fixed-rate loan or one sanctioned before 2026. Outside India, the terms depend on your lender and local rules.
What happens to your EMI when a floating rate resets?
When the rate on a floating-rate loan moves, something has to give, either the EMI or the tenure. Suppose our example loan goes from 11% to 12% after the first year, with ₹8,41,245 still owed. The borrower can go one of two ways:
- Pay a higher EMI and finish on schedule, 48 months later: the instalment rises to ₹22,153. Interest over the remaining term comes to ₹2,22,109, against ₹2,02,391 had the rate stayed at 11%.
- Hold the EMI at ₹21,742 and stretch the tenure: the loan runs for another 50 months rather than 48, ending with a last EMI of about ₹3,695. Interest over the remaining term is ₹2,27,829.
On EMI-based personal loans in India, RBI’s circular of 18 August 2023 obliges lenders to:
- Spell out at sanction how a change in the benchmark could affect the EMI or tenure, and tell borrowers about any increase.
- Offer a switch to a fixed rate at reset, under the lender’s board policy, and let borrowers pick a higher EMI, a longer tenure, a combination of the two, or a part or full prepayment.
- Disclose switching charges upfront.
- Make sure a longer tenure never tips into negative amortisation, where the EMI stops covering the interest.
The central bank’s FAQs on the circular confirm that existing borrowers are covered too, and that the rules apply to personal loans only, not to other categories such as business loans.
FAQ
What is the EMI for a ₹10 lakh loan for 5 years?
₹21,742 a month at 11%, with ₹3,04,545 in total interest. At 10% the EMI is ₹21,247; at 12%, ₹22,244. The rate-and-tenure grid above has the other combinations.
How do I calculate EMI manually without a calculator app?
Turn the annual rate into a monthly decimal (divide by 12, then by 100) and the tenure into months. Work out (1 + r)n, then put the values into P × r × (1 + r)n ÷ [(1 + r)n − 1]. A phone’s scientific calculator will handle the power step.
Is it better to reduce EMI or tenure after a prepayment?
Cutting the tenure saves more interest: ₹50,789 against ₹24,059 in our example. Cutting the EMI eases monthly cash flow instead. It comes down to whether the total bill or the monthly budget matters more to you.
Why is most of my early EMI going to interest?
Interest is charged on the outstanding balance, and the balance is highest at the start. As it falls, the interest portion shrinks and the principal portion grows, even though the EMI itself never changes.
Does the EMI formula include processing fees and GST?
No. It covers principal and interest only. Processing fees, insurance and taxes on fees are charged separately, so compare loans on their full cost. In India, the number to look at is the annual percentage rate (APR) in the Key Fact Statement.
Can a bank charge me for prepaying a floating-rate loan in India?
Not if you are an individual with a non-business floating-rate loan sanctioned or renewed from 1 January 2026, under RBI’s 2025 directions. Business loans to individuals and MSEs are covered as well, with limits that vary by type of lender. Fixed-rate loans follow each lender’s own policy.
Sources
- Reserve Bank of India: Reset of Floating Interest Rate on EMI based Personal Loans (18 August 2023)
- Reserve Bank of India: FAQs on Reset of Floating Interest Rate on EMI based Personal Loans
- Reserve Bank of India: (Pre-payment Charges on Loans) Directions, 2025
- Microsoft Support: PMT function
- Google Docs Editors Help: PMT function
This article is for information and education only and is not investment, tax or financial advice. Figures were checked on 27 October 2026; confirm current details with the official source or a registered adviser before acting.
