Quick answer: the monthly payment (EMI) is P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the amount, r the monthly rate and n the number of months. Borrowing 1,000,000 at 12% a year for 5 years (r = 1%, n = 60) costs 22,244 a month, or 334,667 in interest over the loan.
How a loan payment is built
Most personal, car and home loans are amortising: you pay the same amount every month, but the split changes. Early payments are mostly interest, because interest is charged on a large balance. As the balance falls, more of each payment goes to the principal. The year-by-year table in the result shows exactly this shift.
Example: 1,000,000 over 5 years at 12%
| Amount | |
|---|---|
| Monthly payment (EMI) | 22,244.45 |
| Total of 60 payments | 1,334,666.86 |
| Total interest | 334,666.86 (about a third of the amount borrowed) |
Stretch the same loan to 7 years and the payment drops to about 17,653 – but the interest climbs to roughly 482,800. Longer terms feel cheaper each month and cost more overall.
Flat rate vs. reducing balance
Some lenders, especially for car and consumer financing, quote a flat rate: interest on the full original amount for the whole term. A 10% flat rate is roughly the same cost as an 18–19% reducing-balance rate over 5 years. This calculator uses the reducing-balance method that banks use for APR, so if your offer says “flat”, ask for the APR or effective rate to compare fairly.
Ways to pay less interest
- Pay a little extra every month – enter it in “Extra payment” to see the months and interest saved.
- Choose the shortest term you can comfortably afford.
- Check prepayment charges before paying off early; some loans charge 1–5% of the balance.
Buying a home? The mortgage calculator adds property tax, insurance and PMI to the monthly payment. To compare a flat-rate offer, run it through the simple interest calculator, and to see how savings would grow instead, try the compound interest calculator.
How to calculate a loan EMI
- Choose your currency. It only changes the symbol and formatting; the maths is the same in every currency.
- Enter amount, rate and term. Use the yearly interest rate and the term in years or months.
- Read the monthly payment. You also see total interest, total repaid and the principal/interest split.
- Try an extra payment. Add a monthly top-up to see how much sooner the loan ends and how much interest you save.
Worked example: the first two payments
1,000,000 borrowed at 12% a year for 5 years: monthly rate 1%, payment 22,244.45.
| Month | Interest (1% of balance) | Principal (payment − interest) | Balance after |
|---|---|---|---|
| 1 | 10,000.00 | 12,244.45 | 987,755.55 |
| 2 | 9,877.56 | 12,366.89 | 975,388.66 |
| 60 | 220.24 | 22,024.21 | 0.00 |
Interest falls every month because it is charged on a smaller balance, so more of the same payment goes to the loan itself. That is why extra payments early in the loan save the most interest.
Comparing two loan offers
- Compare the APR, not only the rate – APR includes most fees.
- Compare offers over the same term; a lower EMI over a longer term often costs more in total.
- Ask whether early repayment is allowed and what it costs.
- Check whether insurance is compulsory and added to the loan amount.
Frequently asked questions
What is EMI?
Equated Monthly Instalment – the fixed amount you pay every month on an amortising loan. It covers that month’s interest plus part of the principal.
What formula does the loan calculator use?
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), with P the loan amount, r the monthly rate (yearly rate ÷ 12 ÷ 100) and n the number of months.
Does this include fees and insurance?
No. Processing fees, insurance and taxes vary by lender. Add them separately or ask for the APR, which includes most fees.
Can I use it for a car loan or personal loan?
Yes. Any fixed-rate loan with equal monthly payments works – car, personal, student or business loans.
Why is so much interest paid at the start?
Interest is charged on the outstanding balance, which is highest at the beginning, so early payments are mostly interest.
What if my rate is 0%?
The payment is simply the amount divided by the number of months, and the calculator handles that.
Does it work for Islamic financing?
Murabaha and Ijarah agreements usually have a fixed instalment based on a profit rate, so the monthly figure is often similar – but check the contract’s own schedule.
Is it better to reduce the EMI or the tenure after a prepayment?
Reducing the tenure usually saves more interest; reducing the EMI eases your monthly budget. The calculator’s extra-payment field shows the tenure effect.
How much loan can I afford?
Many lenders keep all loan payments under 35–50% of take-home pay. Try different amounts until the EMI fits comfortably in your budget.