How the EMI formula works
An EMI (equated monthly instalment) is a fixed payment that covers both interest and principal. It is calculated as P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where P is the loan amount, r is the monthly interest rate (the annual rate divided by twelve, then by a hundred), and n is the number of months.
Because the payment is fixed but the outstanding balance falls every month, the split inside each instalment shifts. Early payments are mostly interest; later ones are mostly principal. The yearly table above shows exactly where that crossover happens for your loan.
Reducing balance vs flat rate
Reducing-balance interest is charged only on what you still owe, so the interest component shrinks as the loan matures. This is the standard for mortgages, car loans and most personal loans.
A flat rate charges interest on the original amount for the whole term. A "6% flat" loan is far more expensive than a "6% reducing" one — often close to double the effective rate. If a lender quotes a flat rate, switch the method above to compare the two honestly before signing.
What actually reduces your total interest
Total interest is driven far more by tenure than by small rate differences. Shortening a twenty-year loan to fifteen typically saves more than negotiating half a percentage point off the rate, because interest accrues on a large balance for five fewer years.
Prepayments have outsized effect early in the term, when the balance — and therefore the monthly interest charge — is at its highest. A lump sum in year two saves considerably more than the same sum in year fifteen.
Frequently asked questions
Does a longer tenure lower my EMI? +
Yes, but it raises total interest. Stretching a loan from 15 to 20 years cuts the monthly payment noticeably while adding years of interest charges on a slowly shrinking balance.
Is the interest rate here monthly or annual? +
Annual. The calculator divides it by twelve internally to get the monthly rate used in the formula.
Does this include processing fees or insurance? +
No. It models the loan itself. Lenders often add one-off processing fees and mandatory insurance, which raise the effective cost above the headline rate.