The EMI formula
EMI (equated monthly instalment) is the fixed monthly payment on a standard repayment loan. With loan amount P, monthly interest rate r (yearly rate ÷ 12 ÷ 100) and n monthly payments:
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1)
Each month, interest is charged on what you still owe and the rest of your payment reduces the balance. Early on most of the payment is interest; towards the end, most of it pays off the loan – the yearly table shows this.
Worked example
£10,000 over 5 years at 7.9% a year:
- r = 7.9 ÷ 1200 = 0.006583, n = 60
- Monthly payment: £202.29
- Total paid: £12,137.14, so total interest £2,137.14.
APR and representative rates
In the UK, loans are advertised with an APR, which includes compulsory fees as well as interest. The “representative APR” only has to be offered to 51% of people accepted, so your own rate can be higher. Enter the rate on your actual offer for the most accurate result.
Ways to pay less interest
- A shorter term means higher payments but much less interest overall.
- Overpaying, if your lender allows it without a fee, cuts the balance faster.
- Compare offers by the total amount repayable, not only the monthly payment.
If you are struggling with repayments, free and confidential help is available from MoneyHelper, StepChange and Citizens Advice.
Interest-free and 0% offers
Set the interest rate to 0 to see the payments on a 0% deal: the amount is simply divided by the number of months. Check what happens when a 0% period ends – many credit cards and store finance deals switch to a high rate afterwards, and buy-now-pay-later plans may charge fees for late payments.
Comparing two offers
Put each offer into the calculator and compare the total you pay. A loan with a lower monthly payment can cost more overall if the term is longer. Also check for arrangement fees, early repayment charges and whether the rate is fixed for the whole term. A fixed rate means your payment never changes; a variable rate can go up or down.