EMI Formula (Reducing Balance)
EMI = P × r × (1+r)n / [(1+r)n – 1] where P = principal, r = monthly rate (annual rate ÷ 12 ÷ 100), n = tenure in months.
📝 Worked Example
Inputs: Loan ₹10,00,000 · Rate 10.5% p.a. · Tenure 5 years (60 months)
| Step | Calculation | Result |
|---|---|---|
| Monthly rate (r) | 10.5% ÷ 12 ÷ 100 | 0.00875 |
| EMI formula | P × r × (1+r)ⁿ / [(1+r)ⁿ − 1] | |
| EMI | 10,00,000 × 0.00875 × (1.00875)⁶⁰ / [(1.00875)⁶⁰ − 1] | ₹21,494 |
| Total Payment | ₹21,494 × 60 | ₹12,89,640 |
| Total Interest | ₹12,89,640 − ₹10,00,000 | ₹2,89,640 |
💡 Prepaying ₹1 lakh after year 2 saves ~₹35,000 in interest.
What happens if I prepay?
Prepayment reduces the outstanding principal, reducing total interest significantly. Most banks allow part-prepayment with 0–2% penalty on floating rate loans. RBI mandates no prepayment charges on floating rate personal loans.
⚠️ Disclaimer: Actual EMI may vary based on bank fees, processing charges, and GST on charges. Compare rates at RBI's website. Source: RBI.
Last Updated: June 2025