How to Calculate Car EMI
📖 4 min read · Updated August 2025
Car EMI is calculated using the reducing balance method — the same formula every major bank in India uses. Here's how it works.
The EMI Formula
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)
P = Principal Loan Amount
r = Monthly Interest Rate (Annual Rate ÷ 12 ÷ 100)
n = Loan Tenure in Months
Example Calculation
Suppose you take a ₹8,00,000 car loan at 9% p.a. for 5 years (60 months):
P = ₹8,00,000
r = 9% ÷ 12 ÷ 100 = 0.0075
n = 60
EMI = 8,00,000 × 0.0075 × (1.0075)^60 / ((1.0075)^60 − 1)
EMI ≈ ₹16,607/month
Understanding the Amortization Schedule
In the early months, most of your EMI goes towards interest. Over time, the principal component increases as the outstanding balance reduces. This is why making prepayments in the first 1–2 years saves the most interest.
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