How EMI is Calculated

Is EMI fixed or can it change during the loan?

Fixed-rate loans keep EMI constant through the tenure. In floating-rate loans, when the benchmark changes, lenders may either adjust the EMI or extend/reduce the tenure to keep the EMI closer to the original amount. The sanction letter explains which method your lender follows. If market rates rise sharply, consider partial prepayment to bring the outstanding down so the EMI remains comfortable without stretching the tenure excessively.

How does prepayment affect the amortization schedule?

EMIs are split between interest and principal. Early in the tenure, a larger share goes to interest because the outstanding principal is higher. When you prepay, the outstanding principal drops immediately, reducing future interest components across remaining EMIs. You can ask the lender to keep the EMI the same and shorten tenure or reduce EMI and keep the tenure similar. Our EMI Calculator shows how principal and interest evolve month by month.

What if I miss an EMI?

Missed EMIs attract late fees and penal interest. Repeated bounces can lower your credit score and trigger collection calls. If you anticipate a delay, inform the lender proactively and explore temporary arrangements or a date change. Set up auto-debit mandates, keep a buffer in your account near the due date, and use reminders. One-time issues are manageable, but repeated misses harm both cost and profile.

How should I choose tenure?

Shorter tenures reduce total interest but raise EMI. Longer tenures lower EMI but increase interest. A practical approach is selecting an EMI that fits comfortably within your FOIR and cash flow with room for savings, then scheduling part-prepayments when bonuses or raises arrive. This strategy avoids stress while still reducing total interest over time.

What’s the difference between EMI and interest-only payments?

EMI includes both interest and principal; the balance reduces with each payment. Interest-only payments cover interest without reducing principal and are not typical for standard retail loans in India. If offered as a special feature, confirm duration, conversion rules to standard EMI, and total cost impact before opting in.

Are there errors people make while calculating EMI?

Common mistakes include using annual rate directly instead of monthly rate (divide by 12 and 100), mixing calendar months with 30/31-day interest assumptions, and ignoring processing fees or insurance in total cost. Always use the standard formula and verify the lender’s amortization table against your estimates.

Do balloon or step-up EMIs exist?

Some lenders offer step-up EMIs that increase gradually to match expected income growth or balloon structures where a larger payment is due later. These can help short-term affordability but usually increase total interest. Read terms closely and consider whether planned raises are certain before choosing such variants.

Can I switch lenders to lower EMI?

Balance transfer lets you move the loan to a lender offering a lower rate. Compare processing fees, new documentation, and any prepayment charges on your current loan. Ensure the effective APR after transfer is meaningfully lower and that the tenure and EMI align with your budget.

How do floating rates track benchmarks?

Lenders peg floating rates to external benchmarks like repo or MCLR. Movements in benchmarks pass through to your loan at specified reset frequencies. Understanding your reset date helps you plan prepayments and budgets. If rates trend upward, shortening tenure through prepayments can keep interest costs under control.