What is EMI?

EMI (Equated Monthly Installment) is the fixed amount you pay every month to repay a loan. It includes both the principal amount and the interest charged on the loan. The EMI amount remains constant throughout the loan tenure, making it easier to plan your monthly budget.

How is EMI Calculated?

The EMI is calculated using the following formula:

• P = Principal loan amount
• r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
• n = Loan tenure in months

Understanding Your EMI Breakdown

• Principal Component: The portion of your EMI that goes toward repaying the actual loan amount
• Interest Component: The portion that covers the interest charges on the outstanding loan balance
• In the initial months, the interest component is higher. As you pay down the principal, the interest component decreases

Factors Affecting Your EMI

• Loan Amount: Higher loan amounts result in higher EMIs
• Interest Rate: A higher interest rate increases your EMI and total interest paid
• Loan Tenure: Longer tenure reduces monthly EMI but increases total interest paid

Tips to Reduce Your EMI Burden

• Make a larger down payment to reduce the principal amount
• Opt for a longer tenure if you need lower monthly payments (but be aware of higher total interest)
• Compare interest rates from different lenders
• Consider making prepayments when possible to reduce principal and save on interest
• Maintain a good credit score to qualify for better interest rates