EMI Calculator

Understanding EMI & Loans

What is EMI?

EMI (Equated Monthly Installment) is the fixed monthly payment you make to repay a loan. It includes both principal repayment and interest charges. The EMI amount remains constant throughout the loan tenure (for fixed-rate loans), making budgeting easier.

EMI Calculation Formula

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

Where:
P = Principal loan amount
r = Monthly interest rate (Annual rate / 12 / 100)
n = Number of monthly installments (Tenure in years × 12)

Types of Loans

1. Home Loan (Housing Loan):

• Interest Rate: 8.5% - 9.5% p.a. (as of 2026)
• Tenure: Up to 30 years
• Tax Benefits: Deduction under Section 80C (principal) and Section 24(b) (interest)
• Processing Fee: 0.25% - 1% of loan amount
• Loan Amount: Up to 90% of property value

2. Car Loan:

• Interest Rate: 8.5% - 11% p.a.
• Tenure: Up to 7 years
• No Tax Benefits (unless for business use)
• Processing Fee: ₹2,000 - ₹10,000
• Loan Amount: Up to 90% of vehicle on-road price

3. Personal Loan:

• Interest Rate: 10.5% - 24% p.a. (varies by credit score)
• Tenure: Up to 5 years
• No Tax Benefits
• Processing Fee: 1% - 3% of loan amount
• Unsecured loan - no collateral required

EMI Components Explained

Principal: The original loan amount borrowed. This portion reduces your outstanding balance.

Interest: The cost of borrowing money. In initial years, a larger portion of EMI goes towards interest. As loan progresses, principal component increases.

Example: ₹25 Lakh home loan at 9% for 20 years
Monthly EMI: ₹22,492
Year 1: Interest ≈ ₹18,750, Principal ≈ ₹3,742
Year 10: Interest ≈ ₹13,500, Principal ≈ ₹8,992
Year 20: Interest ≈ ₹1,670, Principal ≈ ₹20,822

Factors Affecting EMI

• Loan Amount: Higher loan = Higher EMI
• Interest Rate: Even 0.5% difference can mean lakhs over 20 years
• Tenure: Longer tenure = Lower EMI but much higher total interest
• Credit Score: Above 750 gets best rates, below 650 may face rejection
• Income: Banks typically approve EMI up to 40-50% of monthly income

Tips to Reduce EMI Burden

• Larger Down Payment: Pay 20-30% down to reduce loan amount
• Compare Interest Rates: Shop around - even 0.25% matters
• Improve Credit Score: Pay dues on time, reduce credit utilization
• Choose Shorter Tenure: If affordable, saves massive interest
• Prepayment: Make partial payments to reduce principal
• Balance Transfer: Switch to banks offering lower rates

Prepayment Strategy

Prepaying your loan can save lakhs in interest. Most banks allow prepayment without penalty after a lock-in period (usually 6-12 months).

Example: ₹25L loan at 9% for 20 years
Regular: Total interest = ₹29 Lakhs
With ₹1L annual prepayment: Interest reduced to ₹17 Lakhs (₹12L saved!)
Loan clears in 13 years instead of 20

Common Loan Mistakes to Avoid

• Taking Maximum Tenure: Minimizes EMI but maximizes interest
• Ignoring Processing & Other Fees: Can add 2-3% to effective cost
• Not Comparing Banks: First bank isn't always best deal
• Over-borrowing: EMI shouldn't exceed 40% of income
• Ignoring Insurance: Life insurance + Home insurance are must-haves
• Floating Rate Blindness: Understand rate can change quarterly

Tax Benefits (Home Loans)

• Section 80C: Deduction up to ₹1.5 Lakh on principal repayment
• Section 24(b): Deduction up to ₹2 Lakh on interest (self-occupied property)
• Section 80EEA: Additional ₹1.5 Lakh on interest (first-time buyers, affordable housing)
• Total Maximum Benefit: Up to ₹5 Lakh tax deduction per year!

Fixed vs Floating Interest Rate

Fixed Rate:

• Interest rate remains constant throughout tenure
• EMI predictable - good for budgeting
• Usually 1-2% higher than floating initially
• Best when rates are expected to rise

Floating Rate:

• Interest rate linked to repo rate/MCLR - changes periodically
• EMI can increase or decrease
• Lower initial rate
• Best in falling rate environment (like 2020-2021)

Top Banks Interest Rates (2026 Indicative)

Home Loans:

• SBI: 8.50% - 9.25%
• HDFC: 8.60% - 9.40%
• ICICI: 8.65% - 9.50%
• Axis Bank: 8.75% - 9.60%
• LIC Housing: 8.50% - 9.30%

Car Loans:

• SBI: 8.70% - 9.70%
• HDFC Bank: 8.85% - 10.80%
• ICICI Bank: 9.00% - 11.00%
• Axis Bank: 9.10% - 10.90%

Loan Eligibility Calculation

Banks use this thumb rule:
Maximum Loan = (Monthly Income × 60) - (Existing EMIs × 60)

Example: Monthly income ₹1,00,000, existing EMI ₹20,000
Max Loan = (100000 × 60) - (20000 × 60) = ₹48 Lakhs

When to Take a Loan?

• Home Loan: Always beneficial if buying property (tax savings + asset building)
• Education Loan: Invest in career growth, moratorium period available
• Car Loan: Only if necessary for work, depreciating asset
• Personal Loan: Avoid for lifestyle expenses, okay for emergencies

Final Tips

• Use this calculator before applying to understand true cost
• Always negotiate interest rates - 0.5% reduction = lakhs saved
• Read fine print - prepayment charges, processing fees, hidden costs
• Maintain emergency fund = 6 months of EMIs
• Set up auto-debit to avoid late payment penalties
• Review loan annually - consider balance transfer if better rates available