Most of the people in the country fall in the middle class category and they do not have enough budget for any kind of big expenditure, that they can meet that big expenditure with their savings.

In this situation, it becomes a compulsion for them to opt for the loan. If you look at it from a glance, it is also a wise decision.

The bank or the lending institution gives you the loan on the basis of EMI. I am sure that if you are more than 20 years of age then you must have heard about EMI at some point or the other.

But what is in EMI Actual? What is its full form? We are going to know everything in this article, so let us first know what things you will learn in this article.


What is EMI?

The full form of EMI is equated to a monthly installment, when you take a loan from any bank, this is a way to repay it.

For Example: Suppose you have taken a loan of ₹ 1000, then the bank or institution issues an EMI for you to get back your 1000. EMI can be as per its rules and regulations.

Now suppose the lender told you that he wants ₹ 100 from you every month. This ₹ 100 that you will give him every month, this will be the monthly EMI and the time period of EMI will be 10 months.

It is not necessary that the EMI should be on the basis of the month itself, it depends on the lender that how much amount he wants from you.

Today, most banks or lending institutions allow their customers to do EMI online, while there are some institutions that accept EMI through cheques.

Components of EMI

There are mainly two components of EMI – principal payment and interest. The EMI amount that is charged to you includes both the principal and interest. When your EMI starts, your EMI consists of a lesser part of the principal, more of the interest, but as your EMI approaches the verge of ending, the principal part keeps on increasing and the interest part decreases.

EMI Components

What is the amortization schedule?

The Amortization Schedule shows a comprehensive table in which you can check the details of your EMI Amortization Schedule. It is updated from time to time. It contains every detail related to your loan and EMI. It helps you to understand how detention works.

How is EMI calculated?

Now the question comes that how can you calculate EMI, then see there is a simple formula to calculate EMI, which is as follows-

Formula to Calculate EMI

Now let’s see-through an example of how you can calculate EMI, Here is a chart. According to the chart, suppose you took a loan of ₹ 500000 at the rate of 12% interest and the company gave you this loan 36 Said to pay the month when you put all these values on this formula, then you will get your monthly EMI which is Rs 16607-

Principal Amount (in Rs.) 5 Lakh
Rate of Interest (%) 12%
Tenure (in months) 36
Payable EMI (in Rs.) 16,607

Factors Affecting EMI

Now we will know why your EMI amount gets affected, so here are the main three reasons –

  • Principal Loan Amount: If your principal loan amount is higher then your EMI will also be higher.
  • Interest Rate: Just like the principal loan amount, the interest rate is also there, even if the interest rate is higher then your EMI amount will increase and if the rate is less then this loan amount will decrease. The loan lender decides how much interest is to be charged on your EMI.
  • Loan Tenure: The longer your loan tenure, the higher will be your EMI amount but you have to pay more interest if the loan tenure is longer.

What are the types of loan Interest Rates?

The loan interest rates are as follows:

Fixed interest rate: In a fixed interest rate, your interest remains unchanged. If you have paid an interest of 10% this year, then the next huge interest is charged to you at 10%. These interest rates are often one or two percent higher than flat interest rates. And if your EMI carries a fixed rate of interest then you will be able to calculate and track your EMI easily.

Floating or Variable Interest Rate: In this type of interest rate, there is no fixed interest rate on your EMI, it depends on the repo rate of RBI. Fixed interest rates are always two to 5 percent higher than floating interest rates. Most people today prefer fixed interest rates only and choose this, it is a bit higher but it is safer than floating. The biggest risk in floating interest rates is that if the repo rate of RBI increases, then your interest rates will also increase.

Note: Along with growing the economy, the repo rate also grows and India’s economy is still in the growing phase, so it may be that if you take a loan on the basis of floating interest rate, then you will suffer loss, so choose the fix only. .

Does the EMI change during the loan Tenure?

This can happen, but there are many reasons behind this, we discuss them below-

  • Floating interest rate: When you take a fixed rate loan, you cannot change the EMI there. But if you choose the floating interest rate option then here the EMI amount keeps on changing as we told you earlier that as the repo rate changes, the floating interest rate also changes and if the interest rate changes then its direct Your EMI will be affected.
  • Prepayment of loan: Some banks give their customers the facility of prepayment, when you pay a lump sum amount to your bank, your EMI automatically reduces. By doing this you can reduce your interest.
  • Progressive EMI: Some lending institutions allow the option of progressive EMI to repay the loan amount. A fixed EMI is required to be paid for a specified period, after which the amount is subsequently increased. This is generally applicable in case of long term loans.

What is an EMI Calculator?

The way you do mathematical calculations through a calculator, you can calculate your EMI through the EMI calculator. You will find many types of EMI calculators on the net like personal loan EMI calculator, EMI calculator for home loans, education loan EMI calculator, to name a few.

Why should you use an EMI calculator?

  • Financial plan: With the help of online EMI calculator, you can easily calculate your monthly EMI, in this you do not need pen paper.
  • Accuracy: Now EMI calculator is computerized so its results are quite accurate whereas if you use a normal calculator to calculate your MI with pen paper then you may make some mistakes.

  • Convenient: You can avoid going to the bank by using the EMI calculator. Suppose you want a loan for your home, then you simply first use the calculator of the bank from which you want the loan to know your MI that you can do on the EMI for that loan. are or not. This one is much better and accessible.
  • Time Saving: By using EMI Calculator, you can calculate your EMI very accurately in just a few minutes, this saves you a lot of time.


1. What is the full form of EMI?

EMI means Equated Monthly Installment.

2. Is EMI Good or Bad?

While the EMI option offers the facility to repay the loan in installments, you should not overlook the fact that you are paying more than the actual value of the product.

There are additional costs in the form of interest and processing fees. Also, if you miss the EMI payment, it can affect your credit score and you may incur additional charges or increased interest rates.

However, when it comes to long-term financial decisions like buying a home, getting a loan with an EMI facility is highly beneficial, as you can easily repay the amount through timely payments while enjoying tax benefits. Huh.

3. What is the difference between EMI and Loan?

A loan refers to an amount that a bank or financial institution lends to a borrower in exchange for an agreement that the borrower will pay back the amount with interest.

EMI refers to the method of transaction, on the basis of which the borrower repays the loan in the form of periodic payments at a specified interest rate over a specified period.

4. Is GST applicable on personal loan EMI?

GST is not applicable on loan repayment amount or interest on loan. However, GST will be applicable on processing fees and other charges levied by your lender.

5. What happens if EMI is not paid on time?

If EMI is not paid on time, it can affect the credit score of the borrower.

Generally, banks do not consider a customer as a defaulter if he misses EMI payment once and will send a reminder if the customer misses it three times in a row.

Banks issue late penalty charges and can issue notices if customers do not respond to reminders.

6. What are the big and small mistakes?

EMI payments made within 90 days are considered minor defaults while payments made in the last 90 days or more are considered major defaults. Such loan accounts are classified as non-performing assets (NPAs).

7. What is No Cost EMI?

A ‘No Cost EMI’ refers to a loan where you do not have to pay additional interest on the principal amount.

It is usually offered by retailers/online marketplaces for relatively small-ticket purchases such as consumer durables, electronics, etc.