An EMI stands for Equated Monthly Instalments, and is the unit in which one repays any kind of loan they have availed; it is composed of principle repayment and interest. The proportions of these 2 components varies over time as the tenure of your loan advances.
An EMI is arrived at by adding the total principle borrowed and the interest due thereon for the entire duration of the loan and then dividing the sum by the number of months in your selected tenure.
Even if you don’t increase your EMI pay-out over time – which you can- you should at least leave it intact over the tenure of your loan. Should other factors change - like the rate of interest being charged by your lender, or a pre-payment made by you – opt instead to have your tenure adjusted accordingly, rather than reducing your EMI.
Related: Types of loans [infographic]
Since credit is now a way of life for the average Indian versus the emergency measure it used to be a couple of generations back, it’s best to be aware of where the traps lie and how to use loans prudently and develop a sound personal finance game plan. Let’s go!
"An investment in knowledge pays the best interest"- Benjamin Franklin -
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