Calculate the monthly installment for any personal, auto or business loan.
An EMI is a level payment sized so the loan clears exactly at the end of its term. The formula is P x r x (1+r)^n / ((1+r)^n - 1), where P is the principal, r the monthly rate (annual rate divided by twelve, as a decimal) and n the number of monthly instalments. The payment never changes on a fixed rate, but what it is doing changes completely over the life of the loan.
Early instalments are mostly interest, because interest is charged on the outstanding balance and the balance is at its highest. Late instalments are mostly principal. On a long loan at a typical rate, the first payment can be roughly three-quarters interest, and by the final years that has inverted. This is why a prepayment made in year two removes far more total interest than the same amount paid in year fifteen, and why comparing loans on EMI alone misleads: a longer tenure always shows a smaller EMI while costing considerably more overall.
Interest is calculated on the outstanding balance each month, and the balance is largest at the start. As the principal falls, the interest portion falls with it and the principal portion grows, even though the total payment stays the same.
A reducing balance rate charges interest only on what you still owe. A flat rate charges it on the original amount for the whole term, so a quoted twelve per cent flat is roughly equivalent to twenty to twenty-two per cent reducing balance. Always confirm which basis a quote uses.
No. It makes the monthly payment smaller and the total cost larger. The principal is spread over more months so each instalment falls, but interest accrues on the balance for longer, often adding a substantial amount across the full term.
As early as possible. A prepayment reduces the outstanding balance, and every future month of interest is then calculated on that smaller balance, so early prepayments remove far more interest than identical amounts paid near the end.