How to calculate EMI: the formula, a worked example and a quick shortcut

The EMI formula

EMI = P x r x (1 + r)^n divided by ((1 + r)^n - 1). P is the loan amount, r is the monthly interest rate (yearly rate divided by 12 and by 100) and n is the number of months.

Worked example

A car loan of Rs 8,00,000 at 9% a year for 5 years. Monthly rate r = 9 / 12 / 100 = 0.0075. Months n = 60. The formula gives an EMI of about Rs 16,607. Over 60 months you pay about Rs 9,96,400 in total, so interest is about Rs 1,96,400.

How to compare two loans

• Do not compare only the EMI. A longer tenure lowers the EMI but raises the total interest.
• Compare the total payment, not the rate alone, if fees differ.
• Ask for the processing fee and any prepayment charge in rupees.

Ways to cut interest

• Pay a bigger down payment.
• Choose a shorter tenure if the EMI is comfortable.
• Pay extra towards principal when you get a bonus.

Skip the maths

The EMI Calculator and the Car Loan Calculator do all of this instantly and show a year-by-year table of principal and interest.