EMI Calculator

Compare flat vs reducing rate, see your real EMI, and find out how much extra payments can save you

Most home, car and standard personal loans use reducing balance. Flat rate is common on some personal loans, gold loans and vehicle loans from NBFCs.
Please enter valid, positive numbers for loan amount, rate and tenure.
Real cost of this flat rate: a flat rate of 0% works out to roughly the same EMI as a 0% reducing balance rate — that's the number to compare against other loan offers.

What Is EMI?

EMI (Equated Monthly Installment) is the fixed amount you pay your lender every month until a loan is fully repaid. Each EMI is split into two parts: interest (the lender's charge for lending you the money) and principal (the actual amount you borrowed, being paid back). On a standard reducing-balance loan, the interest portion is largest in your very first EMI and shrinks every month after that, while the principal portion grows — even though the total EMI amount itself never changes.

EMI Formula Explained

For a reducing-balance loan, the monthly EMI is calculated as:

EMI = [P × r × (1 + r)n] / [(1 + r)n − 1]

Where P is the principal (loan amount), r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the number of monthly installments (tenure in months). This is exactly the formula the calculator above uses for reducing-balance loans.

Flat Rate vs Reducing Balance Rate — What's the Real Difference?

This is the single most misunderstood number in Indian lending, and it can cost borrowers a lot of money if missed.

  • Reducing balance rate (also called "diminishing balance"): interest is charged only on the amount you still owe. As you repay principal, the balance — and the interest charged on it — keeps shrinking every month.
  • Flat rate: interest is charged on the full original loan amount for the entire tenure, regardless of how much you've already repaid. Your outstanding balance is falling, but the interest you're charged isn't.

Because of this, a flat rate always works out more expensive than the same nominal percentage under a reducing balance rate. As a rough rule of thumb, a flat rate is roughly equivalent to a reducing balance rate that's 1.8 to 1.9 times higher — so a loan advertised at "10% flat" can genuinely cost close to what an 18-19% reducing-balance loan would. The calculator above shows this "equivalent reducing rate" automatically whenever you select Flat Rate, so you can compare offers on equal footing.

Stated RateTypeRoughly Equivalent To
10%Flat~18-19% reducing balance
12%Flat~21-23% reducing balance
15%Flat~27-29% reducing balance

These are illustrative approximations — the exact equivalent depends on the tenure. Use the calculator above with your own numbers for a precise figure.

How Extra EMI Payments Save You Money

Every extra rupee you put towards a reducing-balance loan goes straight to reducing your outstanding principal — and since future interest is calculated on that (now smaller) balance, you immediately start paying less interest for the rest of the loan. Two common ways to do this:

  • An annual extra EMI: many salaried borrowers pay one or two extra EMIs a year (for example, using a bonus), which can shave years off a long-tenure loan.
  • A small extra amount every month: even a modest top-up on top of your regular EMI compounds significantly over a long tenure.

Most lenders apply prepayments by keeping your EMI the same and shortening your tenure — which is also the option that saves you the most total interest. The calculator above models exactly this, and shows the full month-by-month (or year-by-year) amortization schedule so you can see precisely how your balance is paid down.

Frequently Asked Questions

What is EMI?
EMI stands for Equated Monthly Installment — a fixed amount you pay every month towards your loan, made up of interest and principal. On a reducing-balance loan, the interest portion of each EMI shrinks over time while the principal portion grows, even though the EMI itself stays the same.
What's the difference between flat rate and reducing balance rate?
Flat rate charges interest on the full original loan amount for the entire tenure. Reducing balance charges interest only on what you still owe, which falls every month. For the same stated rate, flat rate is significantly more expensive — roughly equivalent to a reducing rate 1.8-1.9x higher.
Does paying extra EMIs reduce my tenure or my EMI amount?
Most lenders keep your EMI the same and reduce your tenure instead, which also saves you the most total interest. Some lenders let you choose to reduce the EMI amount instead while keeping the original tenure.
Is there a penalty for prepaying my loan?
In India, the RBI does not allow prepayment penalties on floating-rate loans taken by individual borrowers. Fixed-rate loans and some other loan types may still carry a charge, so check your loan agreement first.
What is a good EMI-to-income ratio?
A common guideline is to keep all your EMIs combined under 40-50% of your net monthly income, leaving room for other expenses and future borrowing needs.