Year-by-year balance
How the EMI formula works
An equated monthly instalment (EMI) is a fixed payment that clears both principal and markup over the loan period. The formula is EMI = P × r × (1+r)n / ((1+r)n − 1), where P is the loan amount, r is the monthly rate (annual rate divided by 12 and by 100) and n is the number of months. In the early years most of each instalment is markup; as the balance falls, a larger share goes to principal. The balance table above shows exactly how that shifts.
Using the calculator for common Pakistani loans
For a car or personal loan, enter the financed amount (price minus down payment), the quoted annual rate and the tenure. For a home loan, try tenures of 10, 15 and 20 years and watch how total payable changes more than the monthly figure does: stretching a loan lowers the instalment but can add millions in markup. Islamic banks use structures such as diminishing musharaka or ijarah where the monthly rental is linked to a benchmark, so their payments can change over time; the EMI here is a good approximation at a given rate.
Ways to reduce the total cost of a loan
- Increase the down payment so you borrow less.
- Pick the shortest tenure whose instalment you can afford comfortably, ideally below 40% of take-home pay.
- Ask whether early settlement or part-prepayment attracts a fee.
- Compare offers using total payable, not only the instalment.
Worked example
Borrow Rs 1,000,000 at 15% a year for five years. The monthly rate is 1.25% and there are 60 instalments. The EMI formula gives about Rs 23,790 a month, so you repay about Rs 1,427,400 in total, of which about Rs 427,400 is markup. If you shorten the tenure to three years, the instalment rises to about Rs 34,670 but total markup falls to about Rs 248,000. Stretching to seven years lowers the instalment to about Rs 19,300 but pushes markup above Rs 620,000.
Choosing the right tenure
| Tenure | Monthly EMI | Total markup |
|---|---|---|
| 3 years | about Rs 34,670 | about Rs 248,000 |
| 5 years | about Rs 23,790 | about Rs 427,400 |
| 7 years | about Rs 19,300 | about Rs 621,000 |
Questions to ask the bank
- Is the rate fixed or linked to KIBOR, and how often does it reset?
- What are the processing fee, insurance and takaful charges?
- What is the penalty for early settlement or part-payment?
- Is the markup calculated on a reducing balance?
Before you borrow
Work out your take-home pay with the salary calculator and make sure the instalment fits comfortably. For business loans, test whether the investment pays for itself with the ROI calculator and check margins with the profit calculator. Farmers can compare commercial loans with interest-free financing under the Kissan Card, and students planning an instalment purchase can read about the Punjab student e-bike scheme.
Frequently asked questions
What is an EMI?
An equated monthly instalment is the fixed amount you pay every month so the loan, including markup, is fully repaid at the end of the tenure.
Can I use this for Islamic financing?
It gives a close estimate for fixed-rate products. Variable-rental products such as diminishing musharaka will change as the benchmark rate changes.
Does it include processing fees?
No. Add processing, insurance and takaful charges quoted by your bank separately.
How much of my income should go to EMIs?
A common guideline is to keep total loan instalments below roughly 40% of net monthly income. Banks set their own limits.
What happens if I pay extra each month?
Extra payments reduce principal faster, which cuts total markup. Confirm with your bank how prepayments are applied.