How Our Loan EMI Calculator Works: Formula and Amortization

The EMI formula

Our Loan EMI Calculator uses the standard reducing-balance amortization formula: EMI = P x r x (1+r)^n / ((1+r)^n - 1), where P is the principal loan amount, r is the monthly interest rate (annual rate / 12 / 100), and n is the number of monthly installments.

How amortization works

Each EMI payment has two components: interest on the outstanding principal for that month, and principal reduction. In early months, the interest portion is large (because the outstanding balance is high) and the principal portion is small. As the principal decreases, the interest portion shrinks and the principal portion grows, while the total EMI remains constant.

Example amortization

For a $100,000 loan at 8% annual interest for 5 years (60 months), the EMI is $2,027.64. First payment: $666.67 interest, $1,360.97 principal. Last payment: $13.50 interest, $2,014.14 principal. Total interest: $21,658.

What is not included

The calculator does not include processing fees, insurance premiums, taxes, or prepayment penalties. These vary by lender and loan type. Always verify the actual EMI with your lender's quotation, which will include all applicable charges.