EMI Calculation Explained: Formula and Worked Example
How to calculate business loan EMI with a ₹10 lakh worked example and repayment comparison.
Worked example: ₹10 lakh at 10% for 5 years.
Suppose an MSME borrows ₹10,00,000 at 10% per annum for 60 monthly instalments. The monthly reducing-balance rate is 10% ÷ 12 = 0.833333%.
For loan amount P, monthly rate r and number of months n, EMI = P × r × (1+r)n ÷ ((1+r)n − 1).
| Result | Amount |
|---|---|
| Monthly EMI | ₹21,247.04 |
| Total of 60 instalments | ₹1,274,822.68 |
| Total interest | ₹274,822.68 |
In month one, interest is ₹8,333.33 and the rest of the EMI reduces principal. The interest share falls as outstanding principal decreases.
For credit assessment, compare the instalment with realistic cash accruals rather than turnover alone.
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Assumptions and limitations
These examples are educational and use the stated illustrative assumptions. Actual interest and repayment calculations can depend on day-count convention, compounding, rounding, moratorium, fees, rate resets, sanction conditions and bank policy. Verify against the sanction letter and account statement.