EMI
Also called: Equated Monthly Instalment, equated monthly instalment
What is EMI?
An EMI, or equated monthly instalment, is the fixed amount paid every month to repay a loan over its term. Each instalment covers interest for the month plus a portion of principal, with the split shifting toward principal over time.
Why EMI matters
EMI affordability is what decides whether a business loan is sensible, and the total interest paid is what decides whether it was worth it. The two questions have very different answers.
EMI formula
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
P is principal, r the monthly interest rate, and n the number of months.
How EMI works in practice
Compare offers on total interest across the tenure, not on EMI alone — a longer tenure lowers the EMI and raises the total cost. Check prepayment charges before signing, since early repayment is often the best return available.
Worked example
₹10,00,000 at 12% a year over 5 years is an EMI of about ₹22,244 and roughly ₹3.3 lakh of total interest.
Frequently asked questions
It lowers the monthly outflow and raises the total interest paid — cheaper per month, more expensive overall.