The full form of EMI is Equated Monthly Instalments. EMI is a set amount that a borrower must pay a lender on a specific month date for a set period. The borrower charges the main and interest components of an EMI over a certain number of years to fully repay the loan. As a result, the interest rate and principal are mixed unevenly.
Factors EMI Depends On
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The 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 borrowed amount, also referred to as the principal amount, and the duration or tenure of the loan is the lender’s time to repay the whole loan along with interest. Lenders, for example, banks, charge an interest rate.
Benefits of EMI
- By allowing people to pay in instalments, EMI enables them to make purchases outside their financial grasp.
- Individuals can pay the EMI directly to the lender without dealing with an agent because no middleman is involved.
- Since they must make minimum monthly payments rather than a one-time payment, EMI does not affect their savings.