How to Calculate Loan EMI: Formula, Amortization & Tips

## What is EMI? An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified calendar date each month. EMIs are applied to both interest and principal each month so that over a specified number of years, the loan is paid off in full. ### The Mathematical EMI Formula The mathematical formula applied by banks and financial institutions is: ```text EMI = [P × r × (1 + r)^n] / [(1 + r)^n – 1] ``` Where: - **P** is the Loan Principal amount. - **r** is the monthly interest rate (Annual interest rate divided by 12 and then by 100). - **n** is the loan tenure in total number of months. ### How Tenure Impacts Total Payable Interest While longer tenures reduce your immediate monthly cash outflow, they drastically inflate the total cumulative interest paid over the life of the loan. Always try to prepay principal whenever bonuses or excess savings permit!