Loan Calculator
Full loan analysis on a reducing-balance basis: monthly payment, total interest, total repayment and a year-by-year outstanding balance curve.
Inputs
Formula
- EMI = P · i · (1 + i)ⁿ / ((1 + i)ⁿ − 1), i = r / 1200, n = years × 12
- Total interest = EMI × n − P
- APR ≈ effective cost including one-time fees
A reducing-balance loan charges interest only on the outstanding principal. Each equal instalment (EMI) is split between interest on the current balance and principal repayment; as the balance falls the interest share drops and the principal share rises. The closed-form annuity formula above returns the instalment that exactly clears the loan in n periods.
Step-by-step calculation
Monthly rate
i = r / 1200
0.007083
Number of periods
n = years × 12
240
Growth factor
(1 + i)ⁿ
5.441243
Instalment
P·i·(1+i)ⁿ / ((1+i)ⁿ − 1)
21,695.58
Total interest
EMI × n − P
2,706,939.4
Worked example
- ₹25,00,000 at 8.5% p.a. for 20 years → i = 0.0070833, n = 240.
- EMI = 2 500 000 × 0.0070833 × 1.0070833²⁴⁰ / (1.0070833²⁴⁰ − 1) = ₹21,696.
- Total repayment = ₹52,07,043, of which ₹27,07,043 is interest.
Assumptions
- Fixed interest rate for the whole tenure and no prepayment.
- Interest compounds monthly, in line with normal retail lending practice.
Tips
- One extra EMI a year on a 20-year loan typically cuts the tenure by roughly 4 years.
- Compare lenders on total interest paid, not the headline rate — fees and reset frequency matter.
Frequently asked questions
What is the difference between flat and reducing-balance interest?
Flat interest is charged on the original principal for the entire tenure; reducing balance charges only on what you still owe. A 10% flat rate is roughly equivalent to 17–19% reducing balance.
How much does the tenure affect total interest?
Heavily. Extending the same loan from 15 to 25 years lowers the EMI by around 20% but can nearly double the total interest paid.
Does the processing fee change the EMI?
No — it is a one-time cost, but it raises the effective cost of the loan, which this calculator reports separately.
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