Understanding Equated Monthly Installments (EMI)
Published on March 20, 2026
An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.
How is EMI Calculated?
The mathematical formula for calculating EMIs is: E = P x r x (1 + r)^n / ((1 + r)^n - 1)
- E is EMI
- P is Principal Loan Amount
- r is rate of interest calculated on monthly basis. (i.e., r = Rate of Annual interest/12/100. If rate of interest is 10.5% per annum, then r = 10.5/12/100=0.00875)
- n is loan term / tenure / duration in number of months
Why is EMI Important?
Understanding your EMI helps in budgeting your monthly expenses. It gives you a clear picture of how much you need to set aside for loan repayment, ensuring you don't default on your obligations.