Instalment Loans: How Each EMI Splits Between Interest and Principal

Instalment Loans: How Each EMI Splits Between Interest and Principal

An instalment loan is repaid in fixed equated monthly instalments (EMIs) over a set tenure. Each EMI covers interest plus some principal, and the mix shifts towards principal over time.
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In summary

An instalment loan has a fixed EMI, but what each EMI pays for changes: early EMIs carry more interest, later ones more principal. That is why part-prepayments early in the tenure save the most. The rate method matters too: a flat rate that looks lower than a reducing-balance rate can cost more. Compare total interest, and check whether the quote for an instalment loan is flat or reducing before you sign.


  • The EMI stays the same each month. 
  • Early EMIs are mostly interest. 
  • Part-prepayment shifts the split towards principal. 
  • A flat rate can cost more than it looks. 

Planning a fixed monthly repayment? Check your loan offer with your phone number and a one-time password (OTP) → apply online → receive funds within 24 hours* of approval.

What types of instalment loans are there?

Each instalment loan is repaid in EMIs, and the types differ mainly in what secures them:

  • Personal loan: For any lawful personal need, with no asset pledged. 
  • Vehicle loan: For a car or two-wheeler, with the vehicle hypothecated to the lender. 
  • Home loan: For buying or building a home, with the property mortgaged. 
  • Consumer durable loan: For appliances or electronics, tied to the purchase. 
  • Education loan: For course fees and costs, on terms set by the lender, secured or unsecured depending on the amount. 

Every instalment loan follows the same EMI arithmetic. What changes is the rate, the tenure and what you put at stake.

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How does each EMI split over time?

Interest is charged each month on the principal still owed, so it is largest at the start. The table shows the first year of a Rs. 2.3 lakh instalment loan.


Rs. 2.3 lakh at 13.5% over 36 monthsAmount (Rs.)
EMIs paid in year 193,660
Of which interest27,027
Of which principal66,633
Principal still owed after year 11,63,367

Last updated: 26th October, 2026


In year 1, 29% of what is paid goes to interest. By the final year, almost all of each EMI repays principal. Your repayment schedule, called the amortisation schedule, shows this split for every month of the loan.

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Why does the rate method matter?

Lenders quote rates in 2 ways, and the difference is large. A reducing-balance rate charges interest only on the principal still owed, so interest falls as you repay. A flat rate charges interest on the original amount for the whole tenure, even as the principal shrinks. The table compares the 2 on the same instalment loan.


Rs. 2.3 lakh over 36 monthsMonthly instalment (Rs.)Total interest (Rs.)
13.5% per annum, reducing balance7,80550,984
8% per annum, flat7,92255,200

Last updated: 26th October, 2026


A flat 8% costs more than a reducing 13.5%, because the flat rate keeps charging on money you have already repaid. Regulated lenders show the annual percentage rate in the Key Fact Statement, which puts both methods on the same footing. Compare that figure, not the headline rate.

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What changes the split?

Two choices shift more of each payment towards principal, and both cut the total cost of an instalment loan:

  • A shorter tenure: Larger EMIs repay principal faster, so less interest builds up over the life of the loan. 
  • A part-prepayment: A lump sum cuts the principal at once, so every later EMI carries less interest. 

Nilesh's loan

Nilesh is 33, a salaried cotton ginning unit accounts manager in Akola, paid Rs. 60,000 a month; he holds a 739 CIBIL score. The Rs. 2.3 lakh loan above is his instalment loan, taken to furnish a new rented home at an illustrative 13.5% per annum. He set 3 years beside 4.


EMI = P × R × (1 + R)^N ÷ [(1 + R)^N − 1]. Here P = Rs. 2,30,000, R = 13.5 ÷ 1,200 and N = months.


TenureMonthly EMI (Rs.)Total interest (Rs.)EMI as share of salary (%)
36 months (3 years)7,80550,98413.0
48 months (4 years)6,22868,92310.4

Last updated: 26th October, 2026


A 4-year term would drop each EMI by Rs. 1,577 but add Rs. 17,939 of interest. Processing would cost up to Rs. 9,499. Nilesh chose 36 months and plans a part-prepayment from his annual bonus.


What can delay approval: a CIBIL score below 650 or existing EMIs that take up a large share of your income. Names or addresses that do not match across documents, and more than one loan application in the same month, can also slow it down.


Considering an instalment loan? With a Bajaj Finance Personal Loan, you can borrow Rs. 40,000 to Rs. 75 lakh, subject to eligibility. Check your loan offer with your phone number and a one-time password (OTP) → apply online → receive funds within 24 hours* of approval.

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How does a part-prepayment change Nilesh's loan?

A lump sum paid early cuts the principal at once. The table shows what a Rs. 50,000 part-prepayment after 12 EMIs does to Nilesh's instalment loan, if he keeps the EMI and lets the tenure shorten.


PointWithout part-prepaymentWith Rs. 50,000 after 12 EMIs
Principal after the payment (Rs.)1,63,3671,13,367
EMIs left2416
Interest from month 13 on (Rs.)23,95311,111

Last updated: 26th October, 2026


The payment saves Rs. 12,842 of interest and 8 EMIs. Weigh that against the part-prepayment charge before you pay.

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When does an instalment loan not suit you?

A fixed EMI suits steady income. An instalment loan may not fit in these cases:

  • The need arrives in stages over months: A Flexi variant, where interest runs only on what you draw, or staged savings fit better. 
  • Income is highly seasonal: A fixed EMI must be met every month, so plan it on the lean months or wait. 
  • The cost is small: Savings cost nothing. 

Fixed EMIs make budgeting simple, as long as your income is fixed too and the EMI fits a lean month.

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Is a personal loan an instalment loan?

Yes. Under the Term Loan variant, a Bajaj Finance Personal Loan is repaid in fixed EMIs on a reducing balance, with the full schedule in My Account. It ranges from Rs. 40,000 to Rs. 75 lakh over 12 months to 108 months, for Indian nationals aged 21 years to 80 years with a CIBIL score of 650 or higher.

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Key offerings: 3 loan types

  • Flexi Hybrid Loan
  • Flexi Dropline Loan
  • Term Loan

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    You can pay interest-only EMIs for up to 36 months, after which, the EMI will consist of both, the principal and the interest. EMI is applicable only on the withdrawn amount.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest on the loan amount you withdraw.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Amount disbursed in one go
    The entire loan amount is disbursed at the start.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest.

  • Flexi facility charges
    No Flexi facility charges.

Personal loan interest rate and applicable charges

Type of fee

Applicable charges

Rate of interest per annum

10% to 30.5% p.a.

Processing fees

Up to 4.13% of the loan amount (inclusive of applicable taxes).

Flexi Facility Charge

Term Loan – Not applicable

Flexi Loans –Up To Rs 1,999 To Up To Rs 18,999/- (Inclusive Of Applicable Taxes)

Will be deducted upfront from loan amount.

Bounce charges

Rs. 700 to Rs. 1,200/- per bounce

“Bounce charges” shall mean charges for (i) dishonor of any payment instrument; or (ii) non-payment of instalment (s) on their respective due dates due to dishonor of payment mandate or non-registration of the payment mandate or any other reason.

Part-prepayment charges

Full Pre-payment:

  • Term Loan: Up to 4.72% (Inclusive of applicable taxes) on the outstanding loan amount as on the date of full pre-payment

  • Flexi Term (Dropline) Loan: Up to 4.72% (Inclusive of applicable taxes) on the outstanding loan amount, as on the date of full prepayment.

  • Flexi Hybrid Term Loan: Up to 4.72% (Inclusive of applicable taxes) on the outstanding loan amount, as on the date of full prepayment.

Part Pre-payment

  • Up to 4.72% (Inclusive of applicable taxes) of the principal amount of Loan prepaid on the date of such part Pre-Payment.

  • Not Applicable for Flexi Term (Dropline) Loan and Flexi Hybrid Term Loan.

Penal charge

Delay in payment of instalment(s) shall attract Penal Charge at the rate of up to 36% per annum per instalment from the respective due date until the date of receipt of the full instalment(s) amount.

Stamp duty (as per respective state)

Payable as per state laws and deducted upfront from loan amount.

Annual maintenance charges

Term Loan: Not applicable

Flexi Term (Dropline) Loan:

Up to 0.295% (Inclusive of applicable taxes) of the Dropline limit (as per the repayment schedule) on the date of levy of such charges.


Flexi Hybrid Term Loan:

Up to 0.472% (Inclusive Of Applicable Taxes) Of The Dropline Limit During Initial Tenure. Up to 0.295% (Inclusive Of Applicable Taxes) Of Dropline Limit During Subsequent Tenure

Credit guarantee scheme feeUp to 1.18% p.a. (pro-rated daily till 31st March) (inclusive of all applicable taxes) of the loan amount
Credit guarantee scheme renewal feeUp to 1.18% p.a. (inclusive of all applicable taxes) on the outstanding loan amount as on April 01 of the subsequent Financial Year.
*Renewal Fee to be collected only for 3 subsequent financial years.
 
**If the Remaining Tenure is less than 12 months, the CG Fee in subsequent years shall be charged prorated.

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Frequently asked questions

How it works

Reducing the cost

What is an instalment loan?

An instalment loan is borrowed as a lump sum and repaid in fixed monthly EMIs over a set tenure. Each EMI covers interest on the outstanding principal plus part of the principal. Personal, vehicle, home and consumer durable loans are common examples of an instalment loan, each with its own terms.

Interest is charged on the principal you still owe, which is largest at the start. As each EMI repays some principal, the interest part shrinks and the principal part grows. For the Rs. 2.3 lakh loan above, Rs. 27,027 of the Rs. 93,660 paid in year 1 was interest, about 29% of the total.

A part-prepayment reduces the principal at once, so later EMIs carry less interest, and the loan can end sooner or the EMI can fall. A Term Loan carries a part-prepayment charge, listed with the other loan charges on this page. Compare that charge with the interest you would save on the rest of the instalment loan.

It costs less interest, but it needs a higher EMI. Go as short as your budget allows, testing the EMI against a month with an unexpected bill before you commit to it. Nilesh's 36-month EMI took 13% of his salary, which left room for his rent, savings and other bills.

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