What an EMI is
An equated monthly instalment (EMI) is the fixed amount paid to the lender every month until a loan is repaid. Each EMI covers the interest due on what is still owed and repays part of the loan: at first most of it is interest, and as the balance falls, more of it goes to the loan.
The formula
Lenders in India work out the EMI of a reducing-balance loan as below, where P is the loan amount, r the interest rate for a month (the yearly rate ÷ 12 ÷ 100) and n the number of months.
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
Example
A loan of ₹10,00,000 at 9% a year for 20 years has r = 0.0075 and n = 240, so the EMI is about ₹8,997. Over the 20 years about ₹21,59,343 is paid in all, of which about ₹11,59,343 is interest. A shorter tenure raises the EMI but cuts the total interest.