Decoding EMI: Exploring Types, Components, Calculations

EMI called as Equated Monthly instalment is a mechanism in which the loan repayment amount is broken down by the lender in equal monthly instalments like pay later. Typically, it is calculated on the principal amount regarding the loan duration and interest rate. This is an efficient way of loan repayment, provided by non banking financial companies and banks.

  • EMI is basically of two types

The Online loan app india and banks provide only two types of EMI to the borrowers, which are EMI in advance and EMI in arrears.

EMI in arrears –  This is a standard loan assistance whereby the borrower is required to pay a fixed amount of money at the end of every month as a repayment. As a result of this process, the borrower receives the entire amount of the loan in his or her bank account along with a deduction for the processing fee that will be deducted from that account.

EMI in advance – this is the second time the borrower has to make the payment to the lender in advance. Unlike EMI in arrears, the full amount of cash loan is not disbursed in the borrower’s account. Instead, the lender needs to pay EMI consisting of only the principal amount in advance.

  • Components of EMI

In general, it may consist of only two components, interest and principal. According to the rules, during the initial years, the interest payment is very high. However, in the end of the loan tenure, one needs to be in bulk for settling the principal amount efficiently in loan apps.

Principal – it is the total amount borrowed From a lender. The EMI calculation is done on the basis of the amount borrowed. A higher amount of Principal leads to the bigger amount of EMI, hence EMI is directly proportional to the principal amount.

Interest – the rate of interest charged by any lending agency is the second component of EMI. The bank or NBFC predetermines it. Several factors including fiscal deficit, inflation, borrowers cibil score, and loans in your make up the rate of interest for any loan.

  • Key points

A monthly interest and principal payment (EMI) is the portion of the loan amount that is to be paid by the borrower to the creditor over the period of time decided. EMI has only two components – interest and principal.

The lending agency or instant personal loan online app predetermined the interest rate that is charged in EMI by the bank. Points such as fiscal deficit, inflation, borrowers cibil score, and launch in your make up the interest rate for a loan.
EMI is a payment system offered to the borrowers for paying back their loan amount to such loan assist apps and lending agencies on a fixed date each month. It is applicable on the principal amount and the interest payable each month. It eventually leads to a complete loan repayment over the agreed tenure.

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