Every loan EMI comes from the same formula — but the way principal and interest split inside each payment is what makes early prepayment so powerful.
The EMI formula
EMI = P × r × (1+r)^n / ((1+r)^n − 1), where P is principal, r is the monthly interest rate, and n is the number of months. The output is constant across the loan term.
Why early payments are mostly interest
In the first months, interest is calculated on a near-full balance, so most of each EMI goes to interest. The principal share grows as the balance falls.
Prepayment math
A one-time prepayment reduces the principal, which compounds savings over every remaining month. Even a small extra payment in year one saves more interest than the same payment in year five.