How to calculate your loan EMI
- 1Enter the loan amount (the principal).
- 2Enter the yearly interest or markup rate the bank quotes.
- 3Choose the term in years or months and enter it.
- 4Read the monthly instalment, the total interest and the total you will repay.
EMI formula (reducing balance)
- 01r = yearly rate ÷ 12 ÷ 100 (monthly rate)
- 02n = term in months
- 03EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- 04Total repaid = EMI × n · Total interest = (EMI × n) − P
- 05If the rate is 0, EMI = P ÷ n
An EMI (Equated Monthly Instalment) is a fixed payment made every month until a loan is cleared. Each payment covers that month's interest plus part of the principal. Because the balance owed falls a little each month, the interest portion shrinks and the principal portion grows, while the instalment stays the same. This is the reducing-balance method used by banks and leasing companies.
The instalment comes from the standard amortisation formula EMI = P·r·(1+r)ⁿ / ((1+r)ⁿ − 1), where P is the loan, r the monthly rate and n the number of months. Multiply the instalment by the months to get the total repayment, then subtract the loan to get the total interest.
A shorter term means a bigger instalment but far less total interest. The quoted markup is not the only cost — banks add a processing fee, and car loans need insurance or takaful each year.
EMI calculation example
Borrowing 2,000,000 at 20% a year over 5 years means instalments of 52,987.77.
You repay 3,179,266.05 in all, so the loan costs 1,179,266.05 in interest.
Good to know
- A shorter term means a bigger instalment but far less total interest — compare a few before you sign.
- Ask the bank for the total cost, not just the monthly instalment: fees and insurance add up.
- A larger down payment lowers the loan, which lowers both the instalment and the interest.
EMI calculator — common questions
How is EMI calculated?
By the reducing-balance method: EMI = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where P is the loan, r the monthly markup rate and n the number of months. Interest each month is charged only on the balance still owed.
How can I lower my monthly instalment?
Borrow less (a bigger down payment), choose a longer term, or find a lower rate. A longer term lowers the instalment but increases the total interest you pay.
Does this include processing fees and insurance?
No. It shows the instalment, interest and total from the loan, rate and term only. Your bank's processing fee and any car insurance or takaful are extra.
What rate should I use for a car loan in Pakistan?
Use the rate your bank quotes. Car and personal loan rates are often around 18–26% a year and move with the State Bank's policy rate.
Sources
Formulas last reviewed: September 30, 2026 ·How we check our formulas