EMI
Equated Monthly Instalment is the fixed monthly payment that repays a loan over its tenure.
EMI depends on principal, interest rate and tenure. Extending tenure lowers the EMI but raises total interest paid; a shorter tenure does the opposite.
Why EMI matters when comparing products
When comparing financial products in India, especially loans, understanding EMI is crucial for budgeting and long-term financial planning. It directly impacts monthly cash flow, helping individuals assess affordability. A lower EMI might seem appealing, but it often translates to higher overall interest costs. Conversely, a higher EMI reduces total interest paid, making it vital to compare EMIs across different lenders and tenures to find a balance that suits one's financial capacity and goals.
Illustrative example
Consider a loan of ₹1,00,000. If the tenure is 12 months at a certain interest rate, the EMI might be around ₹8,700. If the tenure is extended to 24 months for the same principal and rate, the EMI could reduce to approximately ₹4,800. While the monthly outflow is lower in the second scenario, the total interest paid over 24 months would be higher than for the 12-month tenure.
Related terms
The process of repaying a loan through fixed instalments that cover both interest and principal.
Interest charged only on the outstanding principal, which falls with every repayment.
Fixed Obligation to Income Ratio is the share of monthly income already committed to debt repayment.