Glossary
EMI (Equated Monthly Instalment)
The fixed monthly payment on a reducing-balance loan — same amount, shifting split.
Definition
An Equated Monthly Instalment (EMI) is the fixed monthly payment a borrower owes on a loan with a defined principal, interest rate, and tenure. The total EMI stays constant for the full tenure, but the split between interest and principal shifts month by month, with interest dominating the early years and principal the later years.
Formula
EMI = P × i × (1+i)^n / ((1+i)^n − 1)
P = principal, i = monthly interest rate (annual % ÷ 12 ÷ 100), n = tenure in months.
Key points
- Indian retail home loans typically run on a reducing-balance basis; flat-rate quoting is rare for floating-rate products.
- Doubling the tenure roughly doubles total interest paid, even though the monthly EMI falls.
- Floating-rate home and personal loans usually permit part-prepayment without penalty.
- Banks may quote a slightly different EMI than the calculator because of fees, GST, or rounding.
Worked example
A ₹25 lakh home loan at 8.5 % for 20 years works out to a monthly EMI of about ₹21,696. Over the full tenure you repay roughly ₹52 lakh — over double the principal — with the extra ₹27 lakh being pure interest. The same loan at 15 years cuts total interest by about ₹8 lakh, at the cost of a higher monthly EMI.
Related
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