| Overview: Personal loan amortisation splits each EMI into interest and principal components. Early EMIs pay more interest, while later ones reduce principal faster. Understanding this EMI breakup helps compare loan offers, plan prepayments, and estimate total interest costs effectively. |
Why Understanding EMI Breakup Matters for Indian Borrowers
Most Indians taking personal loans focus only on the monthly EMI amount. However, research shows that most personal loans in India are amortised, meaning each EMI contains both interest and principal components that change over time. Without understanding this amortisation in personal loan structures, borrowers often miss opportunities to save money through better loan choices or prepayment strategies.
RBI data consistently shows strong growth in unsecured personal loans, indicating rising dependence on EMI-based credit for consumption and emergencies. This makes understanding your EMI breakup more crucial than ever for smart financial planning.
What Is Amortisation in Personal Loans?
Amortisation in a personal loan refers to the systematic repayment process where your loan gets paid off through fixed EMIs over a predetermined tenure. Each EMI includes two components: interest for that month and principal repayment that reduces your outstanding balance.
Unlike simple interest calculations, amortisation creates a detailed schedule showing exactly how much of each EMI goes towards interest versus principal reduction. This schedule runs until your outstanding balance reaches zero at the final EMI.
Key Components of EMI Breakup
- Interest component: Calculated on the remaining outstanding balance
- Principal component: The portion that directly reduces your loan amount
- Outstanding balance: Decreases with each principal payment
Indian lenders typically provide an amortisation schedule so that borrowers can track how each EMI splits between principal and interest over time, improving transparency in loan servicing.
How EMI Calculation Works
EMI calculation uses a standard formula incorporating three key inputs: loan amount (P), interest rate (r), and tenure (n). The formula ensures your EMI remains constant throughout the loan tenure, but the internal breakup between interest and principal changes monthly.
Here’s how it works step by step:
- Month 1: Interest = Outstanding balance × Monthly interest rate
- Principal repaid = EMI – Interest component
- New balance = Previous balance – Principal repaid
- Month 2: Process repeats with the new, lower balance
Sample EMI Breakup Example
| Month | EMI (₹) | Interest (₹) | Principal (₹) | Outstanding balance (₹) |
| 1 | 10,000 | 7,500 | 2,500 | 4,97,500 |
| 6 | 10,000 | 7,313 | 2,687 | 4,84,135 |
| 12 | 10,000 | 7,063 | 2,937 | 4,66,891 |
Notice how the interest portion decreases while principal repayment increases, even though EMI stays constant at ₹10,000.
| Pro Tip: Before taking a personal loan, always review the complete amortisation schedule—not just the EMI amount. It shows total interest payable and helps you decide if a shorter tenure or prepayment can save money. |
Making Informed Loan Decisions
Understanding amortisation in personal loan structures helps you compare offers beyond just EMI amounts. Look at the total interest payable, prepayment flexibility, and how quickly your principal reduces over time.
When evaluating personal loans, check the complete repayment schedule, foreclosure charges, and part-prepayment policies. Modern digital platforms make this analysis easier by providing clear amortisation calculators and transparent cost breakdowns.
Airtel Finance offers a fully digital personal loan experience. You can model different scenarios, understand your EMI breakup upfront, and manage repayments conveniently through the Airtel Thanks app without traditional banking complexities.
FAQs
1. What does amortisation mean in a personal loan?
Amortisation is the structured repayment method where fixed EMIs gradually pay off both interest and principal until the loan balance reaches zero.
2. Why do early EMIs have more interest than principal?
Interest gets calculated on the outstanding balance, which is the highest initially. As the principal gets repaid, the balance decreases, reducing future interest portions.
3. How does prepayment change my amortisation schedule?
Prepayment reduces outstanding principal directly, lowering future interest calculations. This can reduce remaining EMIs or shorten tenure, depending on lender terms.
4. Can I calculate my own EMI amortisation schedule?
Yes, using the standard EMI formula with the loan amount, interest rate, and tenure. However, most borrowers use online personal loan EMI calculators for convenience and accuracy.
5. Should I choose a shorter tenure to pay less interest?
Shorter tenure reduces the total interest but increases the monthly EMI. Choose based on your cash flow capacity and whether you can comfortably afford higher monthly payments.
