How is personal loan EMI calculated in India?
A
Amit Kumar
Short answer: Your EMI is worked out with one standard formula — EMI = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1) — where P is the loan amount, r is the monthly interest rate, and n is the number of months. For a ₹1 lakh loan at 14% a year over 4 years, the EMI is about ₹2,733 a month.
The three inputs
•
P — Principal: the sanctioned loan amount (e.g. ₹3,00,000).
•
r — Monthly rate: the annual rate ÷ 12 ÷ 100. A 14% annual rate = 0.01167 per month.
•
n — Tenure: the number of monthly instalments. A 4-year loan = 48 months.
Get these three right and the EMI is fixed. Every bank and NBFC in India uses the same maths.
EMI per ₹1 lakh, by tenure (at 14% a year)
Tenure | EMI per ₹1 lakh | Total interest per lakh |
1 year | ₹8,979 | ₹7,748 |
2 years | ₹4,801 | ₹15,224 |
3 years | ₹3,418 | ₹23,048 |
4 years | ₹2,733 | ₹31,184 |
5 years | ₹2,327 | ₹39,620 |
Shortcut: find the per-lakh EMI, then multiply by the number of lakhs. A ₹5 lakh loan over 4 years = ₹2,733 × 5 ≈ ₹13,665 a month.
Reducing balance vs flat rate
Interest is charged one of two ways, and it changes your real cost:
•
Reducing balance: interest applies only to the outstanding principal, which falls each month. This is the standard, honest method the EMI formula assumes.
•
Flat rate: interest applies to the full original amount for the whole tenure. A 10% flat rate ≈ 17–18% reducing balance — almost double the real cost.
Always compare offers on the reducing-balance rate.
Common questions
Does a longer tenure cost more?
The monthly EMI drops, but total interest rises sharply. A 5-year loan costs over 5× the interest of a 1-year loan for the same amount.
The monthly EMI drops, but total interest rises sharply. A 5-year loan costs over 5× the interest of a 1-year loan for the same amount.
Does a higher EMI reduce total interest?
Yes — a higher EMI usually means a shorter tenure, so you pay less interest overall.
Yes — a higher EMI usually means a shorter tenure, so you pay less interest overall.
Why is my EMI higher than a calculator showed?
The lender's actual rate, processing fee (typically 1–3%), or add-ons differ from what you entered. Always calculate with the final sanctioned rate.
The lender's actual rate, processing fee (typically 1–3%), or add-ons differ from what you entered. Always calculate with the final sanctioned rate.
What score gets a lower rate?
A CIBIL score above 750 usually earns a lower interest rate, which lowers your EMI for the same loan.
A CIBIL score above 750 usually earns a lower interest rate, which lowers your EMI for the same loan.
Before you borrow
Test different amounts and tenures on an EMI calculator, such as the one from True Balance, before you apply — so you lock in an EMI you can sustain. A calculator only estimates; your final EMI depends on the rate, fee, and tenure the lender actually approves, so confirm every charge before signing.
Figures are illustrative, based on standard reducing-balance EMI maths and typical Indian personal loan rates of about 11–24% a year as of 2026.
Full formula walk-through — worked example, amortisation table, and how rate changes your EMI:
👉 https://paisasamjho.inblog.io/how-personal-loan-emi-is-calculated
👉 https://paisasamjho.inblog.io/how-personal-loan-emi-is-calculated
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