The EMI formula is P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1). Every bank uses this same reducing-balance formula, so your EMI is not a guess — it is fixed by three inputs.
What each letter means
- P — the principal, i.e. the loan amount.
- r — the monthly interest rate. Take the annual rate, divide by 12, then by 100. A 9% loan gives r = 9 ÷ 12 ÷ 100 = 0.0075.
- n — the number of monthly instalments. A 5-year loan is 60.
A worked example
Take a ₹5,00,000 loan at 9% for 5 years. So P = 5,00,000, r = 0.0075, n = 60.
Put these into the formula and the EMI comes to about ₹10,379 a month. Over 60 months you pay roughly ₹6.23 lakh, of which about ₹1.23 lakh is interest.
Why early EMIs are mostly interest
Interest each month is charged on the balance still owed, which is highest at the start. So in the first months, most of your EMI clears interest and only a little clears principal. As the balance shrinks, the split flips and more goes to principal. This is why prepaying early saves the most interest.
Tenure vs total interest
A longer tenure lowers the monthly EMI but raises the total interest, because you owe money for longer. A shorter tenure costs more per month but less overall. There is no free lunch — you are trading monthly comfort against total cost.