The EMI formula
LoanTools uses the standard reducing-balance (also called “diminishing balance”) EMI formula used throughout Indian banking and NBFC lending:
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
Where:
- P is the principal — the loan amount you enter.
- r is the monthly interest rate, calculated as your annual rate ÷ 12 ÷ 100. If you enter an annual rate of 10.5%, r = 10.5 ÷ 12 ÷ 100 = 0.00875.
- n is the total number of monthly installments (your tenure, converted to months — 3 years becomes 36).
If the interest rate is 0%, this formula is undefined (division by zero), so LoanTools handles that case separately: EMI is simply the principal divided evenly across the number of months.
Worked example
Here is a complete example, computed by the same code the live calculator uses — not a separately hand-written approximation.
| Loan amount (P) | ₹5,00,000 |
|---|---|
| Annual interest rate | 10.5% |
| Monthly interest rate (r) | 0.87500%, i.e. 0.008750 as a decimal |
| Tenure (n) | 36 months (3 years) |
| Resulting EMI | ₹16,251 |
First month: interest = ₹5,00,000 × 0.008750 = ₹4,375. Principal component = EMI − interest = ₹16,251 − ₹4,375 = ₹11,876. The outstanding balance after month 1 becomes ₹4,88,124, and month 2’s interest is calculated on that reduced balance.
How the full schedule is built
Every row of the amortization schedule is generated the same way, working forward one month at a time from the original principal:
- Interest for the month = outstanding balance × monthly interest rate.
- Principal component for the month = EMI − interest for that month.
- New outstanding balance = previous balance − principal component.
- Repeat for the next month, using the new outstanding balance.
Because EMI stays fixed while the outstanding balance shrinks every month, the interest portion of each EMI gets smaller over time and the principal portion gets larger — this is what “reducing balance” means in practice.
Rounding and the final installment
Every monetary value is rounded to the nearest paisa as it is calculated, and displayed rounded to the nearest rupee. Rounding hundreds of numbers independently can leave a stray paisa of balance at the very end of a schedule — to prevent that, LoanTools deliberately closes the final month’s balance to exactly zero: the last installment’s principal component is set to whatever balance remains, and that month’s EMI is recalculated as interest + that remaining principal. In practice this means your final EMI can differ very slightly (usually by a few rupees) from every other month’s EMI. This is a deliberate reconciliation, not a display error.
Processing fees and other charges
Processing fee can be entered as a percentage of the loan amount or a fixed rupee amount:
- Percentage fee: fee = loan amount × (fee percentage ÷ 100). For example, ₹5,00,000 at 1% = ₹5,000.
- Fixed fee: the exact rupee amount you enter is used as-is.
“Other charges” (documentation, insurance, admin fees, etc.) is a separate fixed amount you enter. Total upfront charges = processing fee + other charges. The “estimated net amount received” shown is loan amount − total upfront charges — this assumes charges are deducted from the disbursed amount, which is common but not universal; some lenders collect fees separately instead of deducting them. See the processing fee page for more on this distinction.
What this calculator does not account for
Being transparent about scope matters as much as the formula itself. LoanTools does not currently model:
- GST or other taxes that may apply to processing fees or charges.
- Insurance premiums bundled into a loan (unless you manually add them as “other charges”).
- Floating/variable interest rates that change during the loan term — every calculation assumes a fixed rate for the full tenure.
- Prepayment, part-payment, or foreclosure charges.
- Lender-specific rounding conventions, which can differ slightly from the paisa-level rounding used here.
None of this is a limitation you need to work around manually for the numbers on this page — it’s simply what the current calculator does and doesn’t compute. See the disclaimer for how to treat these results relative to your lender’s official loan documents.
Input limits
To keep calculations meaningful and prevent nonsensical input, LoanTools enforces sensible bounds: loan amount must be greater than ₹0, interest rate cannot be negative, and tenure is capped at 600 months (50 years). These exist to catch typos and invalid data, not to reflect real lending policy — a real lender may apply very different limits.