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EMI calculation formula: How do banks compute the monthly instalment?

Asked 16 Jan 2026·312 views
I want to understand the exact EMI formula used by banks for calculating loan instalments. I know the formula is EMI = P × r × (1+r)^n / ((1+r)^n - 1) where P is principal, r is monthly rate, n is tenure. But I want to verify this with an example: Rs 10 lakh at 8.5% p.a. for 5 years. Can someone walk through the calculation?
Asked by Rajesh Kumar

6 Answers

31
✓ Accepted Answer
Your formula is correct. For Rs 10 lakh at 8.5% p.a. for 5 years: Monthly rate r = 8.5/(12×100) = 0.007083. n = 60 months. EMI = 10,00,000 × 0.007083 × (1.007083)^60 / ((1.007083)^60 - 1) = Rs 20,976 per month. Total payment = Rs 12,58,560, interest = Rs 2,58,560.
Answered by Anita Desai · 23 Feb 2026
31
✓ Accepted Answer
Your formula is correct. For Rs 10 lakh at 8.5% p.a. for 5 years: Monthly rate r = 8.5/(12×100) = 0.007083. n = 60 months. EMI = 10,00,000 × 0.007083 × (1.007083)^60 / ((1.007083)^60 - 1) = Rs 20,976 per month. Total payment = Rs 12,58,560, interest = Rs 2,58,560.
Answered by Anita Desai · 14d ago
31
✓ Accepted Answer
Your formula is correct. For Rs 10 lakh at 8.5% p.a. for 5 years: Monthly rate r = 8.5/(12×100) = 0.007083. n = 60 months. EMI = 10,00,000 × 0.007083 × (1.007083)^60 / ((1.007083)^60 - 1) = Rs 20,976 per month. Total payment = Rs 12,58,560, interest = Rs 2,58,560.
Answered by Anita Desai · 11d ago
13
You can verify this using the FinWiz24 EMI calculator. Note that banks sometimes use daily reducing balance instead of monthly reducing, which slightly increases the effective interest rate. The difference is usually less than 1% of total interest.
Answered by Vikram Mehta · 10 Mar 2026
13
You can verify this using the FinWiz24 EMI calculator. Note that banks sometimes use daily reducing balance instead of monthly reducing, which slightly increases the effective interest rate. The difference is usually less than 1% of total interest.
Answered by Vikram Mehta · 16 Mar 2026
13
You can verify this using the FinWiz24 EMI calculator. Note that banks sometimes use daily reducing balance instead of monthly reducing, which slightly increases the effective interest rate. The difference is usually less than 1% of total interest.
Answered by Vikram Mehta · 11d ago

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