What is the full form of EMI

EMI stands for equated monthly installment. This is the fixed payment amount that the borrower pays to the lender during a specific period of time

What is the full form of EMI
What is the full form of EMI

EMI stands for equated monthly installment. This is the fixed payment amount that the borrower pays to the lender during a specific period of time on a specific day of each month. The lender repays the loan in full within the prescribed period. Therefore, it is an unequal combination of principal and interest rate. You can evaluate different loan options from different banks and choose one based on your financial constraints.

 

 

The factor depends on EMI.

1.The EMI depends on many factors, including :

2.interest rate

3.Borrowed Amount

4.Annual or Monthly Rest Period

5.Loan Term

 

The loan amount is the borrowed amount or also called the face amount, and the term or term of the loan is the time it takes the lender to repay the entire loan. Lenders, for example, charge the bank an interest rate.

 

 

Benefits of EMI

EMI helps people buy outside of their monetary control by allowing them to pay in installments.

 

There are no intermediaries and individuals pay the EMI directly to the lender without complaining when contacting an intermediary.

 

EMI has no impact on savings as they have to make minimum monthly payments instead of a lump sum.

 

 

How to calculate EMI

The calculation of an EMI depends on the following three factors:

Interest rate: Interest rate of the lender, the e.Bank

Loan Amount (Main Loan): The amount borrowed.

Loan Term: The time provided by the lender to repay the entire loan, including interest.

 

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Flat interest rate:

Interest is calculated on the entire principal loan without taking into account that with each EMI, the principal amount is reduced. For example, a person wants to buy a car and takes out a 3 lakh car loan at a fixed rate of 12%. and you have to pay it off in 3 years, then the EMI can be calculated as follows

 

1.principal amount: 300,000

2.flat rate: 12%

3.total term :3 years

 

IEM: principal amount (300,000) is divided by 36 months + 12% of the principal amount divided by 12 months = 8333 + 3000 = 11,333

 

The fixed rate is usually used for short-term loans such as car loans and two-wheeler loans.

 

 

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Diminishing balance interest rate:

If the net interest rate falls, the interest rate varies every month, as interest is calculated on the entire main loan amount for the first month and on the outstanding loan amount for the following months. The amount is given below:

 

Loan amount = 300,000

Falling interest rate = 12%

Term: 3 years interest for the first month = loan amount (300,000) * (1/12 *) * (12/100) = 3000 interest for the second month = (outstanding loan amount) * ( 1/12) * (12/100)