Loans or any form of credit has become an important part of our modern day life. People have moved over the attitude of fear and reluctance towards credit and are going in for more loans for meeting their needs. Loans, especially personal loans, can help you meet a variety of your needs right from catering to a personal emergency situation to planning a wedding or holiday, buying that latest gadget in the market, for house renovation, or just about anything.  

Unlike secured loans such as home loan, auto loan or education loan, a personal loan comes without a binding on end use of the loan. This fact makes it a very favorable loan. Moreover, the fact that it can be availed without any collateral makes the process of availing a personal loan very user-friendly.  

These days banks and other financial institutions have brought out changes in their processes and thanks to that, personal loans are disbursed in the shortest period of time, with certain banks claiming to disburse it in a matter of few seconds or minutes *. 

Personal Loans and EMI 

Whenever you go in for a loan, EMI and repayment are a part and parcel of the loan. Individuals often find these confusing and do not understand how EMI is calculated on their personal loans. Very often, lenders just give an EMI figure like X Bank personal loans at EMI of Rs 2187 or a just mention about a low-interest rate.  

Undeniably, these attract the individuals but they still remain confused if they are being charged the right percentage of interest. EMI calculators are also available on all financial websites and at the websites of the banks and financial institutions. However, many people find it not being transparent enough. At the same time, there are many more who like to take charge and calculate by themselves as to how much EMI is payable by them on a personal loan. 

CreditMantri, as your credit coach, always likes to aid you in matters relating to credit and hence, we have designed this article to show you the factors on which EMI depends and how to calculate figures for your EMI easily.  

How does EMI work? 

EMI is an integral part of your loan, as that is the only way of repaying your loan back. As you must be aware, EMI is a short form of Equated Monthly Instalments.  

When you borrow money from a lender, you are charged an interest on the amount lent to you. The interest is charged to compensate the lender for the risk involved in lending to you and also is the remuneration to the lender for being involved in the lending activity.   

When a sum of money is borrowed, it is agreed to be repaid over a pre-determined tenure. For personal loans, the tenure can range anywhere between a few months (when loan is availed from a fintech lender) to 5 years in general.  

The disbursement of the loan is done in one shot for a personal loan, while the repayment happens every month through the tenure of the loan. An EMI is generally composed of a portion of the principal amount and a portion of interest.  And as you repay a certain portion of the principal, the interest at the end of each month is charged on the reduced principal amount.  

An example here will make things clearer. A personal loan of Rs 3,00,000 is availed for a tenure of 5 years at a rate of interest of 12%. 


Annual EMI  Amount 

Principal Repaid 

Interest Paid 

 Principal Outstanding  

























This is an yearly amortization schedule, the same is available for monthly figures on various financial websites.  

Factors that determine Personal loan EMI 

EMIs is determined by 3 main factors. 

  • The loan amount 

  • Interest charged 

  • Tenure of the loan 

The loan amount is the foremost determinant of an EMI. The larger the loan amount, the higher the EMI.  Interest charged also has a similar effect. The lower the interest rate, the lower will be your EMI.  

The only factor that bears an inverse relation to your EMI is the tenure of the loan. The longer the tenure, lower will be your EMI in comparison to a shorter tenure loan. However, you should also bear in mind that the longer the tenure, the more you will be paying towards interest, which increases your total outgo on the loan.  

Calculation of Personal loan EMI 

Now that you know what factors go into the calculation of an EMI, we are sure many of you may have wondered if the EMI figure given by the bank is right and you might have wanted to recheck it. As EMI is paid each month, the principal figure changes accordingly on which the interest is charged for the next month. Therefore interest calculation has to work on a reducing balance method.  

The mathematical formula to calculate an EMI is 

EMI = [P x R x (1+R)^N]/[(1+R)^N-1] 

where P stands for the loan amount or principal, R is the interest rate per month [if the interest rate per annum is 13%, then the rate of interest will be calculated as 13/(12*100)], and N is the number of monthly installments. 

The same can also be calculated using an Excel on your computers or on your mobile. 

You can use the formula tab of Excel to calculate your EMI. 

The formula that you need to input is  


Where the variables stand for rate of interest (rate), number of periods (nper), and the present value of the loan or the disbursed amount is taken as  (PV). As with the mathematical formula even in Excel, we need to use the Interest rate per month or Divide the per annum rate by 12.  

So the next time you get an EMI figure from your lender, you don't have to be in doubt over it. Just make a calculation using the formula given above or if you are a tech-savvy person, let Excel do the job for you.  

However, after confirming the right figure, do not forget to make prompt EMI repayments and keep your credit score healthy at all times.  

* These are generally pre-approved loans for its own customers with high credit scores.