What is EMI: How Does it Work and How is it Calculated?

An equated monthly installment (EMI) is a fixed monthly payment made by borrowers to lenders.
What is EMI: How Does it Work and How is it Calculated?
2 mins

Sumeet has been impressed by the features of Samsung’s latest flagship smartphone, the Galaxy S23 Ultra. Sumeet who is a graphic designer by profession is a technology enthusiast and does not want to miss an opportunity of having hands on the latest gadgets. The versatile phone could be very useful for Sumeet in streamlining his work.

Did you ever find yourself in a similar situation? You can hope of buying the Samsung Galaxy S23 Ultra or an iPhone, but the thought of spending a significant amount stops you from owning such devices. Here is where EMIs (equated monthly instalments) come into the picture. EMIs allow you to convert a single purchase into smaller, manageable instalments spread across a fixed tenure. Monthly instalments help you avoid straining your finances while making it easy to manage your monthly budget.

What is an EMI (Equated Monthly Instalment)?

A popular financial term in the realm of loans and financing is EMI. EMI full form stands for equated monthly instalments and it refers to the fixed sum of money paid by borrowers to lenders each month, encompassing both the principal loan amount and the interest accrued on it.

The EMI meaning lies in its structure: it's a structured repayment method that facilitates affordability for borrowers by breaking down a larger loan amount into manageable monthly payments over a predetermined period, typically ranging from a few months to several years.

What is EMI payment, precisely? It represents the borrower's commitment to repay the loan, ensuring consistent and structured payments over the loan tenure. Each EMI consists of two components: the principal amount (the actual loan amount) and the interest charged by the lender for borrowing that sum.

Calculating an EMI involves complex mathematical formulas that consider the loan amount, interest rate, and loan tenure. Lenders employ various tools and online calculators to determine the EMI amount, aiding borrowers in understanding their repayment obligations before committing to a loan.

In essence, EMI payments provide borrowers with a structured approach to manage their financial obligations, making high-value purchases or investments more accessible without imposing an immediate and overwhelming financial burden.

Understand your EMIs with amortisation schedule

To understand EMIs, you must first know about the loan amortisation schedule. An amortisation schedule is a table showing the details of each payment you make against the loan and displays how EMI works. It is provided to you after you purchase anything on EMI, as it helps borrowers understand the repayment structure.

Part of your EMI payment covers the interest charges, and the rest goes towards reducing the principal amount. Over time, the percentage of EMI that goes towards interest decreases, and the portion that goes towards the principal rises. The amortisation schedule informs you about the changes in principle and interest amounts and helps you see what your EMI payment for each instalments is.

Let us assume you want to buy a smartphone for Rs. 1,00,000. Instead of making a lump-sum payment, you opt for a more manageable route and purchase the device in equated monthly instalments. The EMI comes to around Rs. 17,254.84 per month (over six months).

In the first month, you pay Rs. 1,000 as interest, and the rest – Rs. 16,254.84 – goes towards the principal amount. This reduces your outstanding loan balance to Rs. 83,745.16. This process continues smoothly over the next five months. In the sixth month, you pay your last EMI of Rs. 17,254.84. You have finally paid off your loan in full, and the Samsung Galaxy S23 Ultra is entirely yours, with no outstanding EMIs.


Principal Outstanding (Beginning Balance)


Principal Repayment


Principal Outstanding (Ending Balance)





































While EMI undoubtedly eases your financial burden, there is a better alternative. An option that lets you purchase your favourite products without worrying about interest costs. The Bajaj Finserv Insta EMI Card is the answer. It enables you to buy your dream smartphone – or any other product – on No Cost EMIs. You only pay the product’s price, divided into easy EMIs, without additional interest. You can repay the cost of the product in EMIs, with flexible repayment tenures of up to 60 months.

Check Insta EMI Card Fees and Charges

How EMI is calculated?

EMI, or Equated Monthly Installment, is a fixed payment amount paid by a borrower to a lender at a specified date each calendar month. Calculating EMI involves a relatively simple formula, yet understanding its components is crucial.

The EMI calculation formula is:



  • P represents the principal loan amount borrowed.
  • r is the monthly interest rate. It's the annual interest rate divided by 12 (the number of months in a year).
  • n stands for the number of monthly installments.

Breaking down the formula:

  1. Principal Loan Amount (P): This is the total amount borrowed from the lender. The EMI calculation starts with this value.
  2. Monthly Interest Rate (r): Derived from the annual interest rate. If the annual rate is 12%, the monthly rate would be 1212=1%1212​=1%. This rate is crucial as it determines the interest payable on the outstanding loan amount each month.
  3. Number of Monthly Installments (n): The total number of installments over which the loan is to be repaid. The longer the tenure, the lower the EMI, but it results in higher interest payments over time.

The formula involves the use of exponents and the basic mathematical principles of multiplication and division.

Once these values are plugged into the formula, the EMI amount is calculated. This fixed monthly payment remains constant throughout the loan tenure. However, in the initial stages of the loan, a larger portion of the EMI goes towards interest payments, with the remainder contributing to reducing the principal amount. Over time, the interest component decreases, and the principal repayment portion increases.

Factors that affect EMI

When you take out a loan or purchase anything on EMIs, you agree to pay back the money you borrowed with interest over a set period. The EMI comprises two parts: the principle and the interest. The principal is the money you borrowed, and the interest is the amount you pay to the lender for borrowing the money.

  1. Principal amount: If the cost of the product is high, the loan amount is high as well, which increases the EMI amount.
  2. Interest rate: This is the cost of borrowing or purchasing a product on EMIs and is determined by the lender. A higher interest rate would increase raise your total EMI amount. Thus, looking for a lender offering a lower interest rate, or no interest rate can help reduce the burden.
  3. Loan tenure: This refers to the period over which you choose to repay the loan. A longer loan tenure results in lower EMIs, as the total payable amount is spread over more months. But this means you will pay more interest during the loan period.

Check Insta EMI Card Features and Benefits

Advantages of EMIs

Equated Monthly Installments (EMI) offer numerous advantages, making significant purchases more accessible for individuals. Some of the most prominent advantages of EMI are:

  • Spreading costs: EMI allows spreading substantial expenses over time, easing financial burdens and aiding in better budget planning.
  • Enhanced affordability: It makes high-value assets like homes, cars, or gadgets more accessible without draining savings, offering a more manageable payment structure.
  • Building credit history: Timely EMI payments contribute to a positive credit history, improving credit scores and opening doors to future financial opportunities.
  • Access to favourable rates: A good credit score, built through EMI payments, can lead to access to loans and financial products at favourable interest rates.
  • Structured approach: EMI offers a structured and predictable payment plan, fostering financial discipline and responsible spending.
  • Financial inclusivity: It enables a broader population to afford significant purchases, promoting inclusivity in accessing assets and goods.

How can you simplify EMI payments?

Even when you buy a big-ticket item such as the Galaxy S23 Ultra on EMIs, you might pay a substantial monthly amount. To simplify your EMI payments, you must purchase such items on No Cost EMI, where the interest is waived, and the EMI burden is reduced. All you need to pay is the principal amount, which is the cost of your product in EMIs. You can buy items on No Cost EMI using the Bajaj Finserv Insta EMI Card and divide the cost into monthly payments over 60 months.

This allows you to buy your favourite gadgets and devices without worrying about exceeding your monthly budget. The EMI you pay goes into repaying the principal component of the loan without attracting any interest.

EMIs serve as a comfortable bridge that allows you to purchase your favourite products, items, and much more without the pressure of paying the total amount upfront. They split the price tags of expensive items into manageable monthly instalments.

If you decide to take the EMI route, you can use the Bajaj Finserv Insta EMI Card. It allows you to shop for shop for 1 million+ product on EMIs. You can also avail of a zero down payment facility, which is available on select models with the Bajaj Finserv Insta EMI Card. The digital card is accepted across all leading platforms and retail outlets, such as Amazon, Bajaj Mall, Flipkart, Croma, Vijay Sales, and more, making your shopping experience extremely convenient.

 Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

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Frequently asked questions

What is EMI and how does it work?

EMI or Equated Monthly Instalment is simply the cost of your purchase that is divided into equal parts that you will have to pay monthly in order to fulfil the payment. The number of months and the monthly amount you owe is predetermined. The EMI is dependent on the following factors:

  1. Principal borrowed
  2. Rate of interest
  3. Loan tenure

Apply for Insta EMI Card

What is the benefit of an EMI?

With the Insta EMI card, the No Cost EMIs let you convert the cost of your purchase into interest-free EMI. This makes your shopping more affordable.

Is EMI good or bad?

EMIs are good if you pay them on time as they also help you improve your CIBIL score.

Are EMIs interest-free?

With the Bajaj Finserv Insta EMI Card, the EMIs are interest-free. They are called No Cost EMIs.

Can EMIs be refunded?

No, EMIs are not refunded if you are paying them against a borrowed amount.

How to calculate EMI with an example?

To calculate EMI (Equated Monthly Instalment), you can use the following formula: EMI = P * r * (1 + r)^n / ((1 + r)^n - 1), where P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the loan tenure in months.

For example, if you borrow Rs. 10,000 at an annual interest rate of 6% for 3 years (36 months), the monthly EMI would be EMI = 10,000 * (0.06/12) * (1 + 0.06/12)^36 / ((1 + 0.06/12)^36 - 1) = Rs. 303.87.

What is the difference between an EMI and a loan?

EMI (Equated Monthly Installment) and a loan are closely related but distinct concepts. EMI is the fixed monthly payment made towards repaying a loan, which includes both principal and interest. A loan, on the other hand, refers to the sum borrowed from a lender, and it needs to be repaid, often through EMIs. The key difference is that EMI represents the installment paid, while a loan encompasses the entire amount borrowed.

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