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How to Calculate Loan EMI in Pakistan - Formula and Example

Last updated: 15 October 2026 | Reviewed by Habiba, founder of PakCalculators.com

If you take a loan from a bank in Pakistan for car, house or personal use, you pay back in monthly installments. This installment is called EMI - Equated Monthly Installment.

Formula of EMI

EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]

Where: P = Loan Amount (Principal), R = Monthly Interest Rate (Annual Rate / 12 / 100), N = Total Number of Months

This is called the reducing balance method, which is used for many conventional bank loans. Islamic banks may use a different profit calculation, such as Murabaha or Ijarah.

Pakistani Example

Example: A person in Karachi takes 1,000,000 PKR loan, annual interest 12% (so monthly R = 0.01), for 5 years (60 months).

EMI = [1000000 x 0.01 x (1.01)^60] / [(1.01)^60 - 1] = 22,244 PKR per month.

Total Payment = 22,244 x 60 = 1,334,640 PKR. Total Interest = 334,640 PKR.

How to Use My Loan EMI Calculator

Enter your loan amount in PKR, annual interest rate, and loan duration in years. Click Calculate EMI. It will show monthly EMI, total markup and total payment. This is an estimate. Actual bank charges may include processing fee and insurance.

Common Loan Calculation Mistakes

The first mistake is using the yearly rate as the monthly rate. The formula needs the monthly rate, which is the yearly rate divided by 12 and by 100. A yearly rate of 12% becomes 0.01 per month.

The second mistake is mixing years and months. The formula counts monthly installments, so a loan of 5 years has 60 installments. The calculator asks for years and does this conversion for you.

The third mistake is ignoring extra costs. Processing fees, insurance and late-payment charges are not part of the EMI formula, so the amount you pay in practice can be higher than the estimate.

Another Worked Example

Example: A person takes a 500,000 PKR loan at 18% yearly markup for 2 years (24 months). The monthly rate is 0.015.

EMI works out to about 24,962 PKR per month. Total payment is about 599,089 PKR, so total markup is about 99,089 PKR.

Longer Period, Lower EMI

A longer loan period lowers the monthly installment but raises the total markup, because the balance stays outstanding for more months. Before choosing a period, compare both numbers, not only the monthly figure.

Flat Rate and Reducing Balance

With a flat rate, markup is charged on the original amount for the whole period. With the reducing balance method, markup is charged on the balance still outstanding. For the same quoted percentage, a flat rate usually costs more in total, so ask your bank which one it uses.

FAQ

1. What does EMI include?

EMI covers repayment of the principal and the markup. Fees and insurance are separate unless your bank adds them.

2. Can I pay the loan early?

Many banks allow early settlement, but charges differ. Ask your bank about early settlement terms before you decide.

3. Is the calculator suitable for Islamic financing?

It uses the reducing balance method for conventional loans. Islamic financing such as Murabaha or Ijarah can work differently, so check with your bank.

You can verify your own loan plan quickly with my free Loan EMI Calculator Pakistan to see monthly installment and total interest.

Related Tools and Guides

This guide explains general banking calculation. For final EMI, refer to your bank's official loan schedule. Please read my Disclaimer.