What is EMI?
An Equated Monthly Installment (EMI) is a fixed payment made by a borrower to a lender every month. It consists of two parts: a portion of the principal and the interest charged for that month.
How is EMI Calculated?
EMI = P × r × (1+r)^n / ((1+r)^n - 1)
P = Principal, r = monthly rate, n = months
EMI vs Total Interest
Your EMI stays constant, but early payments go mostly toward interest. As you progress, more of your payment chips away at the principal — this is called loan amortization.
Tips to Reduce Total Interest
- Make prepayments whenever possible — even small amounts reduce the principal significantly
- Choose shorter tenure if you can afford higher EMI
- Compare interest rates across lenders before taking a loan
- Avoid missing payments — penalties add to total cost