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How to calculate loan interest: EMI & byaj
Three ways interest (byaj) is usually charged on a personal loan — flat, monthly on the balance, and EMI on a reducing balance. Here are the formulas and simple worked examples for each.
1. Simple (flat) interest
Charged on the original principal for the whole term.
Formula: Interest = Principal × Rate × Time.
Example: ₹50,000 at 2% per month for 6 months = 50,000 × 0.02 × 6 = ₹6,000 total interest. The total repayable is ₹56,000; split over 6 months that's about ₹9,333 a month.
2. Monthly byaj on an interest-only loan
The borrower pays only the interest each month and repays the principal at the end (or whenever they choose).
Formula: Monthly interest = Outstanding principal × Monthly rate.
Example: ₹1,00,000 at 1.5% per month = ₹1,500 every month until the principal is repaid. If they repay ₹40,000 of principal, the next month's interest drops to 1.5% of ₹60,000 = ₹900.
3. EMI on a reducing balance
A fixed monthly payment that covers both interest and principal; the interest portion shrinks each month as the balance falls.
Formula: EMI = P × r × (1+r)n ÷ [(1+r)n − 1], where P = principal, r = monthly rate (annual ÷ 12 ÷ 100), n = number of months.
Example: ₹1,00,000 at 12% per year (r = 0.01) for 12 months gives an EMI of about ₹8,885. The EMI stays the same every month, but the interest portion shrinks as the balance falls:
| Month | EMI | Interest (1%) | Principal | Balance |
|---|---|---|---|---|
| 1 | ₹8,885 | ₹1,000 | ₹7,885 | ₹92,115 |
| 2 | ₹8,885 | ₹921 | ₹7,964 | ₹84,151 |
| 3 | ₹8,885 | ₹842 | ₹8,043 | ₹76,108 |
| … | … | … | … | … |
| 12 | ₹8,885 | ₹88 | ₹8,797 | ₹0 |
| Total | ₹1,06,619 | ₹6,619 | ₹1,00,000 | — |
Total interest is about ₹6,619 — less than flat at the same headline rate, because interest is only ever charged on what's left.
Flat vs reducing — same rate, different money
The same percentage costs more under flat than reducing, because flat keeps charging on the full original amount. If you're comparing terms, always check which basis is meant — see our guide on flat vs reducing-balance interest.
Same loan, three methods (₹1,00,000 · 1%/month · 12 months)
| Method | How byaj is figured | Total interest |
|---|---|---|
| Flat | 1% of the original ₹1,00,000, every month | ₹12,000 |
| Interest-only | 1% of the balance monthly; principal repaid at the end | ₹12,000 |
| EMI (reducing) | 1% of the falling balance each month | ₹6,619 |
Flat and interest-only cost the same here because the full principal stays outstanding the whole time; the EMI costs roughly half because the balance — and so the byaj — falls every month.
Let the app do the math
LendBook calculates all of this for you — accurate to the rupee — across interest-only, EMI, daily, weekly, lump-sum and interest-free loans, and includes built-in Interest, EMI and rate-comparison calculators. You record the loan once and it keeps the interest, balances and dues correct automatically.
Note: Figures here are illustrative and rounded; this is general information, not financial advice.
Stop calculating byaj by hand
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