Understanding Equated Monthly Installments (EMI)
An EMI is a fixed monthly payment made by a borrower to a lender on a set calendar date. Every EMI consists of two distinct parts: principal repayment and accrued interest.
The Standard Mathematical Formula
EMI is mathematically computed using the reducing balance method formula:
EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]Where:
- P: Principal Loan Amount
- R: Monthly Interest Rate (Annual Rate / 12 / 100)
- N: Loan Tenure in Months
The Amortization Curve
In the initial years of any loan, a significant portion of each EMI goes toward servicing interest. As the outstanding principal reduces over time, a progressively greater share of your EMI pays down the actual principal balance. Use our interactive Loan Calculator on Shri Ram India Finance to see this breakdown live.