EMI
Equated Monthly Instalment — the fixed monthly payment made to repay a loan.
Apply for a LoanWhat is EMI?
EMI (Equated Monthly Instalment) is a fixed amount paid by a borrower to a lender on a specified date each calendar month. EMIs are used to pay off both interest and principal each month so that the loan is fully repaid over the agreed tenure. In the early months, a larger portion of the EMI goes toward interest; as the loan matures, more goes toward reducing the principal.
Example
For a ₹10 Lakh home construction loan at 8.5% p.a. over 15 years, the EMI = ₹9,847/month. In month 1, ₹7,083 goes to interest and ₹2,764 to principal. By month 100, ₹3,942 goes to interest and ₹5,905 to principal.
Frequently Asked Questions
What does EMI stand for in loans?
EMI stands for Equated Monthly Instalment. It is the fixed monthly payment a borrower makes to the lender until the loan is fully repaid. Each EMI contains two components: interest on the outstanding principal and a portion of the principal itself. The formula is: EMI = P × r × (1+r)^n ÷ [(1+r)^n − 1], where P = principal, r = monthly rate, n = tenure in months.
How is EMI calculated in India?
EMI is calculated using the reducing balance method in India. The formula: EMI = [P × r × (1+r)^n] ÷ [(1+r)^n − 1]. Example: ₹5 Lakh personal loan at 14% p.a. for 5 years. Monthly rate r = 14/12/100 = 0.01167. n = 60 months. EMI = 5,00,000 × 0.01167 × (1.01167)^60 ÷ [(1.01167)^60 − 1] = ₹11,634/month.
What is the difference between EMI and monthly interest?
Monthly interest is only the interest component for that month (outstanding balance × monthly rate). EMI includes both the monthly interest and a principal repayment component. Monthly interest decreases each month (as principal reduces) while EMI stays fixed throughout the tenure — the difference (EMI minus monthly interest) goes toward principal repayment, which increases every month.
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