The full form EMI is Equated Monthly Installment. EMI is a fixed amount payable to the money lender by the borrower for a certain period on a certain date every month. The EMI consists of the amount of principal and interest that the borrower has to repay over a period of years to repay the loan in full. It is therefore an unequal mix of the amount of interest and the amount of the principal.
Factor depends on the EMI
EMI depends on many factors including
- Interest rate
- Principal amount borrowed
- Annual or monthly resting period
- Tenure of the loan
The loan amount is the amount borrowed or also referred to as the principal amount. The term or duration of the loan is the time it takes the lender to repay the entire loan plus interest. Lenders, such as a bank, charge an interest rate.
Benefits of EMI
EMI helps individuals make purchases beyond their monetary control by allowing them to pay in installments.
There is no intermediary and individuals pay the EMI directly to the lender without bothering to contact an intermediary.
How to calculate EMI
The calculation of an EMI depends on the three factors, which are as follows:
- Interest Rate: Rate of interest charged by the moneylender, e.g., Bank.
- Tenure of the Loan: The time provided by the lender to repay the entire loan, including the interest.
- Loan Amount (principal loan): The amount borrowed.