By way of example when you have availed that loan of Rs. 1,00,000 and paid 3 instalments included in the EMIs determining to pay off Rs. 25,000 when you look at the instalment that is next. Your interest will likely then be determined from the outstanding after deducting the re re re re payment to the principal in the last 3 EMIs therefore the 25k minus interest for the 4th instalment. It helps to ensure that your interest burden is leaner once you pay the next EMI in the loan ultimately causing a quicker payment of this loan quantity.