Blog Details

Ultimate EMI Guide 2025: How EMIs Work and How to Calculate Yours

What Is EMI and How Does It Work?

EMI stands for Equated Monthly Installment, which is a fixed monthly payment made to a lender to repay a loan or debt. This repayment method is commonly used for loans like home loans, car loans, or personal loans. EMIs are popular because they allow borrowers to manage expensive purchases by splitting the total cost into affordable monthly payments.

For example, if you want to purchase a new car but don’t have enough funds upfront, you can take a car loan and repay it through EMIs. To get started, you will typically need to make a down payment, which is an initial lump sum paid from your own savings.

EMI Full Form and Basic Concept

The full form of EMI is Equated Monthly Instalment. It represents a fixed monthly payment plan used to repay money borrowed from a lender.

Each instalment is made up of two key components:

• Principal – the portion that gradually decreases the remaining loan amount.

• Interest – the cost of borrowing, applied on the outstanding balance.

EMIs are an important aspect of personal financial management, as they help individuals repay loans in a structured and manageable manner. Since the repayment includes interest over time, having a clear understanding of EMIs and how they work can assist borrowers in planning their finances efficiently.

How Does EMI Work in Loans?

• An EMI is a fixed monthly installment that covers both the principal and the interest.

• Borrowers agree to pay these EMIs over a predetermined loan duration, which can span from several months to a few years.

• As time passes, the portion of the EMI that goes toward interest gradually decreases, while the amount applied to repaying the principal grows.

• This gradual reallocation helps borrowers systematically lower their remaining loan balance over the course of the tenure.

Understanding the EMI Formula and Components

An EMI (Equated Monthly Installment) is the fixed amount a borrower pays each month to repay a loan. It is made up of two main components: principal and interest, and understanding how these work can help you plan your finances better.

Components of EMI

1. Principal Component: The principal is the portion of your EMI that goes toward repaying the original loan amount. As you make regular payments, the principal gradually reduces your outstanding loan balance, and its share in the EMI increases over time.

2. Interest Component: Interest is the cost of borrowing, calculated on the remaining loan balance. At the beginning of the loan tenure, the interest portion is higher, but it declines gradually as the principal is repaid.

EMI Calculation Formula Explained

EMI Amount = P x R x (1+R)^N / [(1+R)^N-1]

P = Loan Amount

N = Tenure of Loan

R = Monthly interest rate

To calculate R, the rate of interest is divided by 12.

e.g. if the annual rate of interest is 9.6%, then

R = (0.096 / 12) = 0.008 = 0.8% per month

The formula mentioned above is meant only for conceptual understanding. The loan EMI calculator is created for everyday users, enabling them to easily compute their EMI by inputting the loan amount, interest rate, and tenure.

How to Use Loan Quantum Loan Calculator

Using loan calculator is simple and convenient. To calculate your EMI online, just follow these steps on the Angel One platform:

1. Enter the loan amount

2. Enter the interest rate

3. Enter the loan tenure

That’s all! The online EMI calculator by Loan Quantum instantly provides the EMI amount, along with a detailed breakdown of the principal, interest, and total payable amount.

Here’s an example to demonstrate how the EMI Calculator Online on Loan Quantum works:

Suppose you plan to take a loan of ₹1,20,000 for a wedding. The loan has an interest rate of 7% and a tenure of 3 years. By entering these details into the calculator, you get:

• EMI: ₹3,705/month
• Principal Amount: ₹1,20,000
• Interest: ₹13,389
• Total Payable: ₹1,33,389

Factors That Affect Your EMI Amount

Several elements determine the EMI amount for your loan:

1. Loan Amount: The size of your loan directly affects the EMI. A larger loan amount results in a higher EMI, while a smaller loan leads to a lower monthly payment.

2. Loan Tenure: The length of your loan also influences your EMI. Extending the loan tenure reduces the monthly EMI, but it increases the total interest payable over the course of the loan.

3. Interest Rate: Your EMI is also significantly impacted by the type of interest rate on your loan. With a fixed (flat) interest rate, the EMI remains constant throughout the loan term. For loans with a floating or reducing balance rate, the EMI can change whenever the lender revises the interest rate. However, you can manage these fluctuations by adjusting the loan tenure—either increasing or decreasing it.

Compare EMIs: Personal Loan vs Car Loan

1. Purpose of the Loan

• Personal Loan: Provides flexibility, allowing the borrowed funds to be used for a variety of personal needs.

• Car Loan: Specifically intended for purchasing a vehicle, ensuring the financing is focused on that purpose.

2. Interest Rates

• Personal Loan: Generally comes with higher interest rates compared to other loan types.

• Car Loan: Usually has lower interest rates, which can reduce the total cost of borrowing.

3. Loan Tenure

• Personal Loan: Often features shorter repayment periods, resulting in higher monthly installments.

• Car Loan: Typically offers longer tenures, allowing repayments to be spread out over time and lowering the monthly EMI.

4. EMI Calculation

• Personal Loan: EMIs are determined by the loan amount, interest rate, and repayment period. Using a personal loan EMI calculator helps you estimate your monthly payments under different interest rates and tenure scenarios.

• Car Loan: The EMI is calculated based on the loan principal, interest rate, and tenure. A car EMI calculator provides quick estimates of monthly payments, helping you understand how various loan terms affect your budget.

5. Collateral Requirement

• Personal Loan: Typically does not require any collateral.

• Car Loan: The vehicle itself acts as collateral, which can make loan approval easier and potentially secure better interest rates.

Which Loan Has the Lowest EMI in 2025?

When evaluating a personal loan versus a car loan for the lowest EMI in 2025, a car loan usually comes out ahead due to its much lower interest rates. Since car loans are secured by the vehicle, they pose less risk for lenders, enabling them to offer more favorable interest rates and longer repayment tenures compared to unsecured personal loans.

Additionally, the lower EMI of a car loan makes it easier for borrowers to manage their monthly budget without straining their finances. In contrast, personal loans, which are generally unsecured, tend to have higher EMIs and shorter repayment periods, making careful financial planning essential before taking one.

Conclusion

Understanding EMIs is essential for managing your loans effectively, whether it’s a personal loan, car loan, home loan, or any other type of credit. By knowing how EMIs are structured and calculated, you can plan your monthly budget, compare loan options, and make informed financial decisions.

At Loan Quantum, we provide easy-to-use EMI calculators and expert guidance to help you estimate your monthly payments accurately and choose the loan that best fits your needs.

Ready to take control of your loan repayments? Contact us today and let Loan Quantum guide you toward smarter financial planning.