An EMI — Equated Monthly Installment — is the fixed monthly payment you make on a loan that fully pays off both interest and principal by the end of the term. This is how most mortgages, car loans, and personal loans work. Investopedia has a deeper walkthrough of how each payment splits between interest and principal over the life of the loan.
How the EMI is calculated
The formula is EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the number of months. The first month is mostly interest; the last month is mostly principal.
Worked example
A $20,000 loan at 6.5% for 5 years has an EMI of about $391.32. Over 60 months, total paid is roughly $23,479, of which $3,479 is interest.
