Reducing Balance EMI Calculator
Almost every bank loan in India is a reducing-balance loan: each month you are charged interest only on what you still owe, so the interest portion of your EMI falls over time while the principal portion rises. Enter your figures below.
- Principal
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- Total interest
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- Total payable
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Principal Interest —
Year by year
| Period | Principal paid | Interest paid | Balance |
|---|
How the EMI is worked out
The EMI is fixed, but what it pays for is not: early EMIs are mostly interest, late ones mostly principal. The worked example below uses the same formula as the calculator above.
| ₹25 lakh home loan, 8.75%, 20 years | Amount |
|---|---|
| Monthly EMI | ₹22,093 |
| First EMI — interest / principal | ₹18,229 / ₹3,864 |
| Total interest over 20 years | ₹28,02,264 |
| Total paid to the bank | ₹53,02,264 |
Flat rate against reducing balance
| ₹8 lakh car loan, 9.5%, 5 years | Reducing balance | Flat rate |
|---|---|---|
| Monthly EMI | ₹16,801 | ₹19,667 |
| Total interest | ₹2,08,089 | ₹3,80,000 |
| Equivalent reducing rate | 9.50% | 16.50% |
| Quoted flat rate | Real rate, 3-year loan | Real rate, 5-year loan |
|---|---|---|
| 7% flat | 12.83% | 12.50% |
| 8% flat | 14.55% | 14.13% |
| 9% flat | 16.24% | 15.71% |
| 10% flat | 17.92% | 17.27% |
| 12% flat | 21.20% | 20.31% |
Frequently asked questions
How is EMI calculated on a reducing balance?
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan amount, r is the annual rate divided by 12 and by 100, and n is the number of months. On ₹25 lakh at 8.75% for 20 years that gives an EMI of ₹22,093. Interest is charged each month only on the balance still outstanding, which is why the interest part of each EMI falls over time.
What is the difference between flat and reducing balance interest?
A flat rate charges interest on the full original loan for the whole tenure, even though you repay part of it every month. A reducing balance rate charges interest only on what you still owe. For the same quoted rate, a flat-rate loan therefore costs far more — a 9.5% flat rate over 5 years works out to about 16.5% on a reducing balance.
How much more does a flat-rate loan really cost?
On ₹8 lakh for 5 years at 9.5%, the reducing-balance EMI is ₹16,801 and total interest is ₹2,08,089. At a 9.5% flat rate the EMI is ₹19,667 and total interest is ₹3,80,000 — ₹1,71,911 more for the same quoted rate. Always ask the lender for the reducing-balance equivalent, or the annual percentage rate, before comparing offers.
Why is most of my early EMI going to interest?
Because interest is charged on the outstanding balance, and at the start the balance is the whole loan. In the first month of a ₹25 lakh, 20-year loan at 8.75%, ₹18,229 of the ₹22,093 EMI is interest and only ₹3,864 repays principal. Over the full 20 years you pay ₹28,02,264 in interest — about 53% of everything you pay the bank.
Should I prepay my home loan or reduce the EMI?
If the goal is to pay less interest, keep the EMI unchanged and let the prepayment shorten the tenure. Prepaying ₹1 lakh at the end of year one on a ₹25 lakh, 20-year loan at 8.75% — keeping the EMI the same — ends the loan 21 months early and saves about ₹3.85 lakh of interest. The Reserve Bank does not permit banks to charge prepayment or foreclosure penalties on floating-rate loans to individuals for non-business purposes.
How much does a 0.5% rate rise change my EMI?
On ₹25 lakh over 20 years, moving from 8.75% to 9.25% raises the EMI by ₹804 a month. On a floating-rate loan, lenders often extend the tenure instead of raising the EMI, which keeps the monthly figure steady but can add years of payments — ask which one they have done.
Also try the flat rate emi calculator, or see all calculators. On the writing side: avalanche, snowball and what gets debt paid and what Indian credit cards really cost.
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