It’s used to make credit repayment convenient for the borrower. It divides the total payable amount into affordable portions to help the borrower meet the repayment needs and reduce the default risk.

No. In fact, it is a reliable option to pay the borrowed loan and interest.

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What is EMI and How to Calculate It?

Reviewed by: Fibe Research Team

Updated on: 8 May 2025

Thinking of taking a loan but confused about how you’ll repay it every month? Wondering what EMI really means or how it’s calculated? You’re not alone. Many first-time borrowers often ask questions like: What is the full form of EMI? How is EMI calculated? Are there different types of EMIs?

Here, we’ll break down everything you need to know about EMIs in the simplest way possible. From understanding the meaning of EMI to exploring the types and learning how to calculate it—you’ll find answers to all your questions right here.

Read on to learn the meaning of EMI, how it works and more.

What is EMI and its full form?

EMI stands for Equated Monthly Instalment. It’s one of the easiest and most popular ways to repay a loan. There are different ways to pay back loans — like balloon payments or interest-only options — but EMIs are the most common.

Here’s why:

With EMIs, you pay a fixed amount every month. This amount is calculated based on the total loan amount (called the principal), the interest rate and the time you choose to repay it.

Since you know exactly how much you need to pay each month, it’s easier to manage your finances. You simply keep paying this amount every month until your loan is fully paid off.

How does EMI (Equated Monthly Instalment ) Work?

Taking into account the loan amount, the financial company adds interest to it based on your repayment duration. This amount is spread across the tenure, which results in your EMIs. Thus, all these three terms influence your EMIs.

Here’s what your repayment will look like if you take a loan of ₹1,00,000:

Particulars	Details
Loan Amount	₹1,00,000
Interest rate	14%
Tenure	12 months
Total interest applied	₹7,748
Total repayment amount	₹1,07,748
EMI for 12 months	₹8979

Keep the following in mind:

The EMI amount stays the same throughout the tenure of the loan.

As you pay an instalment, your total payable reduces by that figure.

After the last payment, the lender will close your loan.

Collect a No Objection Certificate (NOC) from them.

Check your credit report to ensure the loan account is closed and your credit score increases.

Also Read: Tips to Lower EMI For a Personal Loan

How is EMI Calculated?

Here are the 2 methods that lenders use to calculate EMIs:

Fixed-Rate Method

Under this method, the calculated interest amount depends on the principal amount. To calculate the instant cash loan EMI, lenders calculate the total sum of principal and interest. This amount is then divided into equal instalments. Since the interest rate remains fixed, the principal and interest component of the EMI stay the same throughout the tenure.

Here is the formula for the fixed-rate method: ((P x R x N) + P)) / (N x 12)

Where, P is the principal amount, R is the rate of interest and N is the tenure of the loan

Reducing Balance Method

Under this method, the interest amount varies with the balance after each EMI payment, i.e., the outstanding amount. Because of this, the interest and principal components vary for every instalment.

However, the EMI will remain fixed throughout the tenure. As you continue to make payments, the principal increases and the interest decreases with every EMI.

Here is the formula for this method: P x R x (1+R)^N/[(1+R) ^ (N-1)]

Where, P is the principal amount, R is the per-month rate of interest and N is the loan tenure in months.

Key Factors That Affect Your (Equated Monthly Instalment) EMI

You should always consider the following factors that impact your monthly instalment amount:

Principal Amount

This is the actual loan amount you borrow.

Higher loan = higher EMI, Lower loan = lower EMI.

Interest Rate

It’s the extra amount you pay on top of the loan.

Higher interest = higher EMI, Lower interest = lower EMI.

Loan Tenure

This is the time you get to repay the loan.

Longer tenure = smaller EMIs, Shorter tenure = bigger EMIs.

Credit Score

A good credit score means you’re seen as a low-risk borrower.

With a high score, you might get lower interest and better EMI options.

With a low score, lenders may charge higher interest, which increases your EMI.

Check your Credit Score

Armed with this information, you can choose a better repayment plan. Remember, your interest rates have a significant influence on your EMI amount. Thus, it’s important to choose a lender that offers pocket-friendly rates like Fibe. With our Instant Cash Loan, you can get up to ₹5 lakhs at an affordable rate.

You only have to meet a few basic criteria, submit minimal documentation and apply online to get the funds in just a few minutes. Download the Personal Loan App or register on our website to apply.

FAQs on EMI

What is the formula used in calculating EMI on loans?

The EMI calculation formula under fixed rate is ((P x R x N) + P)) / (N x 12). Under reducing balance, the formula is P x R x (1+R) ^N/[(1+R) ^ (N-1)]. In both cases, P is the principal, R is the interest rate and N is the tenure.

How is EMI deducted?

Generally, the financial institution automatically deducts the EMI amount from your bank account on the payment date.

Is EMI a good or bad option?

EMI is a good credit repayment option since it allows you to reduce your repayment burden by allowing you to pay in budget-friendly instalments instead of a lump sum amount.