How EMI is calculated
Banks use the reducing-balance formula:
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 monthly installments. For example, a loan of 10,00,000 at 12% for 10 years (120 months) gives an EMI of about 14,347 and total interest of about 7,21,651.
EMI examples
These figures come from the same formula the calculator uses, rounded to the nearest rupee.
| Loan | Rate | Tenure | EMI | Total interest |
|---|---|---|---|---|
| 5,00,000 | 11% | 5 yrs | 10,871 | 1,52,273 |
| 10,00,000 | 10% | 10 yrs | 13,215 | 5,85,809 |
| 10,00,000 | 12% | 10 yrs | 14,347 | 7,21,651 |
| 25,00,000 | 9.5% | 15 yrs | 26,106 | 21,99,011 |
| 50,00,000 | 9% | 20 yrs | 44,986 | 57,96,711 |
| 3,00,000 | 14% | 3 yrs | 10,253 | 69,118 |
How tenure changes the cost of a loan
A longer loan lowers the monthly EMI but you pay interest for more months. Here is a 20,00,000 loan at 10% over different tenures:
| Tenure | EMI | Total interest | Total paid |
|---|---|---|---|
| 5 years | 42,494 | 5,49,645 | 25,49,645 |
| 10 years | 26,430 | 11,71,618 | 31,71,618 |
| 15 years | 21,492 | 18,68,578 | 38,68,578 |
| 20 years | 19,300 | 26,32,104 | 46,32,104 |
Stretching the same loan from 5 to 20 years cuts the EMI by 23,194 a month, but adds 20,82,459 in interest.
Flat rate vs reducing balance
Some lenders quote a flat rate, where interest is charged on the original loan amount for the whole tenure. Banks in Nepal and India usually charge interest on the reducing balance, which is what this calculator uses. A flat rate of 10% costs much more than a reducing rate of 10%, so always ask which one an offer uses before comparing.
Ways to lower your EMI or total interest
- Longer tenure lowers the monthly EMI but increases the total interest you pay.
- Bigger down payment reduces the principal, which lowers both EMI and interest.
- Part-prepayments early in the loan save the most interest, because interest is charged on the outstanding balance.
- Compare the full cost, not just the rate: fees and insurance add to what you pay.
Working out a price with tax? Use the VAT calculator. Need the loan amount in words for a form? Try number to words.
Questions people ask
What is EMI?
EMI (equated monthly installment) is the fixed amount you pay the bank every month until a loan is repaid. Each EMI covers that month's interest plus part of the principal.
Why is most of my early EMI going to interest?
Interest is charged on the outstanding balance. At the start the balance is highest, so interest takes a bigger share. As you repay principal, the interest portion falls and more of each EMI reduces the loan.
Does this include processing fees or insurance?
No. It calculates the reducing-balance EMI only. Banks may add a processing fee, insurance or other service charges, so check your offer letter for the full cost.
My bank's rate is floating. Is this EMI final?
With a floating rate (common in Nepal, where rates are linked to the bank's base rate) your EMI or tenure can change when the rate is revised. Re-run the calculator with the new rate to see the effect.
Updated · 26 Kartik 2083 BS