How to Calculate a Monthly Loan Payment (EMI) With Formula and Examples
Learn the loan payment formula, calculate monthly payments and total interest, and see how loan term changes the cost of borrowing.
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How a fixed loan payment works
A standard installment loan has the same payment every month. Early payments contain more interest, and later payments contain more principal, but the total payment stays constant.
The monthly payment formula
Use this formula for a fixed-rate loan:
- M = P × r × (1 + r) ^ n / ((1 + r) ^ n - 1)
- M is the monthly payment, P is the loan amount, r is the monthly rate (annual rate / 12 as a decimal), and n is the number of monthly payments.
Worked example: $10,000 at 6% annual interest
For a 36-month term, r = 0.005 and n = 36, which gives a payment of about $304.22. The total repaid is about $10,951.92, so interest is about $951.92.
A longer term lowers the payment but increases the total interest paid.
| Term | Monthly payment | Total interest |
|---|---|---|
| 12 months | $860.66 | $327.92 |
| 36 months | $304.22 | $951.92 |
| 60 months | $193.33 | $1,599.80 |
Tips before you borrow
Figures here are estimates for a fixed-rate loan. Your lender's exact schedule may differ slightly.
- Compare the total cost, not just the monthly payment.
- Check for fees, insurance, or a prepayment penalty that the formula does not include.
- Make extra payments toward principal when possible to reduce interest.
FAQ
Why is the interest rate divided by 12?
Payments are monthly, so the annual rate is converted to a monthly rate by dividing by 12.
Does a longer loan term cost more?
Usually yes. The monthly payment is lower, but you pay interest for more months, so the total cost is higher.
Can I use this for a car or personal loan?
Yes, as long as the loan has a fixed rate and equal monthly payments.
