What an EMI is
An EMI, or equated monthly instalment, is the fixed amount you pay every month until a loan is repaid. Each EMI does two jobs: it pays the interest due for that month, and whatever is left over reduces what you owe, called the principal.
The EMI stays the same, but the balance shrinks, so the split between interest and principal changes from one month to the next.
Reducing balance, in one idea
On a reducing-balance loan, each month's interest is worked out only on the principal you still owe, not on the original amount. Early on the balance is large, so more of the EMI goes to interest. As you repay, the interest part falls and more of every EMI goes to principal.
The formula
Lenders use the same standard formula for a reducing-balance EMI:
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P
- The loan amount (principal)
- r
- Monthly rate = annual rate ÷ 12 ÷ 100
- n
- Number of monthly instalments
If the rate is zero, the EMI is simply P ÷ n.
A worked example
Example numbers only: not a TrustLender rate or offer
Say you borrow ₹1,00,000 at 18% a year for 12 months.
- Monthly rate: r = 18 ÷ 12 ÷ 100 = 0.015
- Growth factor: (1 + r)n = 1.01512 ≈ 1.19562
- EMI = 1,00,000 × 0.015 × 1.19562 ÷ 0.19562 ≈ ₹9,168
- 12 × ₹9,168 ≈ ₹1,10,016 repaid in total, of which about ₹10,016 is interest.
| Month | Owed at start | Interest | Principal | Owed after |
|---|---|---|---|---|
| 1 | ₹1,00,000 | ₹1,500 | ₹7,668 | ₹92,332 |
| 2 | ₹92,332 | ₹1,385 | ₹7,783 | ₹84,549 |
| 3 | ₹84,549 | ₹1,268 | ₹7,900 | ₹76,649 |
| Months 4 to 11 | ||||
| 12 | ₹9,033 | ₹135 | ₹9,033 | ₹0 |
Same loan, different tenure
Over 12 months:
- EMI
- ₹9,168
- Total interest
- ₹10,016
- Total repaid
- ₹1,10,016
A longer tenure lowers each EMI but increases the total interest you pay.
What changes your EMI
- The amountEMI moves in direct proportion: borrow twice as much at the same rate and tenure, and the EMI doubles.
- The interest rateA higher rate raises both the EMI and the total interest over the loan.
- The tenureLonger means a smaller EMI but more interest in total, as the example above shows.
- PrepaymentPaying principal early shrinks the balance interest is charged on. Depending on the lender, later EMIs fall or the tenure shortens.
- How often you repayDaily or weekly schedules split repayment into many smaller instalments and can be calculated differently. Compare the total repayable and the APR, not the size of one instalment.
What TrustLender shows you before you sign
Interest is charged on the reducing balance at the rate in your offer and Key Fact Statement. Interest, fees and the total you repay are on screen before you apply, and again in your Key Fact Statement before you sign.
- The amount, EMI, interest, fees and total repayment
- Every EMI and due date before you sign
- The Key Fact Statement to read: nothing is final until you accept
- Prepay any time without a prepayment penalty
Your offer
- EMI & due dates
- In your offer
- Interest
- In your offer
- Processing fee & GST
- Shown before you accept
- Total you repay
- In the KFS