What is an EMI?
An equated monthly instalment is the fixed amount you repay every month until a loan is cleared. Each payment is split between interest on the outstanding balance and repayment of principal; the EMI stays constant but the split shifts from mostly interest early on to mostly principal at the end.
EMI formula with a worked example
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the loan, r the monthly rate and n the tenure in months. For ₹50 lakh at 8.5% over 20 years, r is 0.00708 and n is 240, giving ₹43,391 a month and roughly ₹54 lakh of total interest.
Home, car and personal loans compared
Home loans carry the lowest rates (about 8–9.5% in 2026), tenures up to 30 years, and tax benefits under Sections 24(b) and 80C. Car loans run 9–11% over 1–7 years. Personal loans are unsecured, so 11–18% over 1–5 years is typical. Because tenure affects total interest more than rate does, a shorter tenure at a slightly higher rate often costs less overall.
How to lower your EMI
A larger down payment reduces the principal, a longer tenure lowers the monthly figure at the cost of more total interest, and a better credit score or balance transfer can cut the rate. Prepaying in the first third of the loan saves the most, since that is when the interest share of each EMI is highest.
Frequently asked questions
What is a good EMI to income ratio?
Most Indian lenders cap total EMIs at 40–50% of net monthly income. Staying under 35% leaves room for savings and emergencies.
Does prepayment reduce EMI or tenure?
You choose. Reducing tenure saves far more interest; reducing EMI eases monthly cash flow. Floating-rate loans usually allow either without penalty.
Is EMI calculated on reducing balance?
Yes. Indian home, car and personal loans charge interest only on the outstanding principal each month.
Why is my bank's EMI slightly different?
Banks may round to the nearest rupee, add processing fees, or start interest from the disbursement date rather than the first EMI date.