Before you sign a loan agreement in Pakistan, you need to know exactly what you will pay every month. That monthly figure is your EMI — Equated Monthly Instalment. This guide explains the EMI formula in plain words, works through a real example for a Rs 10 lakh loan, and shows how the interest rate and the loan tenure change what you pay.
What Is Loan EMI?
An EMI is the fixed amount you pay your bank every month until the loan is fully repaid. Each instalment has two parts: part of it pays the interest charged that month, and the rest reduces the loan amount (the principal). Early on, most of your EMI goes towards interest; towards the end, most of it reduces the principal. Because the instalment stays the same every month, you can plan your budget around one fixed number — but the total interest you pay depends heavily on the rate and the tenure you choose.
The EMI Formula
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
P is the loan amount (the principal). r is the monthly interest rate — the bank’s annual rate divided by 12 and by 100. A 12% annual rate means a monthly rate of 0.01. n is the number of monthly instalments — a 2-year loan means 24 instalments.
You can work this out with any scientific calculator, but it is much easier to use our free Loan EMI Calculator, which does the same calculation instantly.
Worked Example: Rs 10 Lakh Loan at 12% for 2 Years
Loan amount (P): Rs 1,000,000. Annual interest rate: 12% (monthly rate r = 0.01). Tenure (n): 24 months. Monthly EMI: Rs 47,073. Total amount payable: Rs 1,129,763. Total interest: Rs 129,763.
So a Rs 10 lakh loan at 12% over two years costs about Rs 1.30 lakh in interest — roughly 13% of the amount borrowed.
How the Interest Rate Changes Your EMI
For the same Rs 10 lakh loan over 24 months: At 12% per year: EMI Rs 47,073 — total interest Rs 129,763. At 18% per year: EMI Rs 49,924 — total interest Rs 198,178. At 24% per year: EMI Rs 52,871 — total interest Rs 268,906.
Doubling the rate from 12% to 24% adds only about Rs 5,800 to the monthly EMI, but it more than doubles the total interest. That is why comparing rates between banks matters more than it first looks.
How the Tenure Changes Your EMI
For the same Rs 10 lakh loan at 12% per year: 12 months: EMI Rs 88,849 — total interest Rs 66,185. 24 months: EMI Rs 47,073 — total interest Rs 129,763. 36 months: EMI Rs 33,214 — total interest Rs 195,715.
A longer tenure lowers the monthly payment but raises the total interest sharply: stretching the same loan from one year to three years nearly triples the interest. Choose the shortest tenure whose EMI you can comfortably afford.
Tips Before Taking a Loan in Pakistan
Keep your total monthly loan payments below 40% of your take-home salary — banks in Pakistan commonly use a similar limit when they approve a loan. Compare the annual rate and the processing fee across at least two or three banks; a lower rate with a high fee can cost more overall. Ask whether the rate is fixed or variable, and whether there is a penalty for early repayment. Never borrow for a depreciating purchase if you can avoid it — the interest is a real cost on top of the price. Before you agree a rate, check the State Bank of Pakistan’s current policy rate — bank lending rates in Pakistan move with it.
Calculate Your Own EMI
Try the figures for your own loan on our free Loan EMI Calculator — enter the amount, the annual rate and the tenure, and it shows your monthly EMI, total payable and total interest instantly. If you are working out your monthly budget first, our guide How to Calculate Salary Tax in Pakistan 2026-27 helps you work out your take-home pay.