What is EMI?
EMI stands for Equated Monthly Installment. It is the fixed amount a borrower pays every month to a lender to repay a loan. EMI includes both principal and interest components.
EMI Full Form
EMI = Equated Monthly Installment
The word “equated” means the installment amount remains the same every month throughout the loan tenure (unless the interest rate changes).
How EMI Works
When you take a loan, the lender divides the total repayment amount into equal monthly payments. In the initial months, a larger portion of EMI goes towards interest. Over time, the principal component increases while the interest component decreases.
Components of EMI
- Principal: The original loan amount borrowed
- Interest: The cost charged by the lender for borrowing money
Types of Loans with EMI
EMI is applicable to most loans, including:
- Home Loan
- Car Loan
- Personal Loan
- Education Loan
- Loan Against Property
- Gold Loan
EMI Example
Suppose you take a loan of ₹3,00,000 at an interest rate of 10% per annum for a tenure of 5 years.
Your monthly EMI will be approximately ₹6,374. Over 5 years, you will repay around ₹3,82,000, where ₹82,000 is the interest amount.
Benefits of EMI
- Easy monthly repayment planning
- Fixed monthly amount
- Helps manage large expenses affordably
- Available for various loan types
Things to Remember About EMI
- Longer tenure reduces EMI but increases total interest
- Higher interest rate increases EMI
- Prepayment can reduce total interest burden
Frequently Asked Questions
Is EMI same every month?
Yes, EMI usually remains fixed unless the loan has a floating interest rate.
Can EMI be reduced?
Yes, EMI can be reduced by increasing loan tenure, lowering interest rate,
or making prepayments.
Is EMI applicable to all loans?
EMI applies to most retail loans such as home, car, and personal loans.