Loans
How to Calculate EMI for a Personal Loan
EMI stands for equated monthly installment — the fixed amount you pay every month on a loan. In the US it is usually just called the monthly payment. Here is how it is calculated, step by step.
By the MoneyTools Editorial TeamLast updated 6 min readEditorial Policy
What EMI means
With a fixed-rate personal loan, you repay the same amount every month until the loan is gone. Each payment covers that month's interest first, and the rest reduces the balance (the principal). Early payments are mostly interest; later payments are mostly principal. This pattern is called amortization.
The EMI formula
EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1]
- P
- Loan amount (principal)
- r
- Monthly interest rate = annual rate ÷ 12, as a decimal
- n
- Number of monthly payments (years × 12)
If the rate is 0%, the formula does not apply and the EMI is simply P ÷ n.
Worked example
Worked example
$10,000 at 12% APR for 3 years
- P = 10,000; r = 0.12 ÷ 12 = 0.01; n = 3 × 12 = 36
- (1 + r)^n = 1.01^36 ≈ 1.43077
- EMI = 10,000 × 0.01 × 1.43077 ÷ (1.43077 − 1) ≈ 143.08 ÷ 0.43077
- EMI ≈ $332.14 a month
- Total paid = $332.14 × 36 ≈ $11,957
Total interest ≈ $1,957. In month 1, about $100 is interest and about $232 reduces the balance.
How the loan term changes your EMI
| Term | Monthly EMI | Total paid | Total interest |
|---|---|---|---|
| 2 years (24 months) | ≈ $470.73 | ≈ $11,298 | ≈ $1,298 |
| 3 years (36 months) | ≈ $332.14 | ≈ $11,957 | ≈ $1,957 |
| 5 years (60 months) | ≈ $222.44 | ≈ $13,347 | ≈ $3,347 |
Stretching from 3 to 5 years saves about $110 a month but adds about $1,390 in interest. Pick the shortest term whose payment fits your budget comfortably.
Other costs that affect a personal loan
Origination fees
Some lenders charge a fee, often taken from the loan amount. With a 5% fee on $10,000, you might receive only $9,500 but still repay $10,000 plus interest. That raises your true cost, which is why comparing the APR matters — see APR vs Interest Rate.
Prepayment
Paying extra toward principal shortens the loan and cuts interest. Check whether your lender charges a prepayment penalty first.
Late fees
Missing a payment can add fees and hurt your credit. Setting up autopay helps.
Check your numbers
- Enter the amount, rate and term in the Personal Loan Calculator to see your EMI and total interest.
- Use the Amortization Calculator to see how each payment splits between interest and principal.
- Compare a few terms and offers before you accept one.
These are educational estimates. Your lender's disclosures show the exact payment, APR and fees.
Run your own numbers
Estimate payments and total cost for a personal loan.
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