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EMI Understanding the Term

Almost everyone might need financial aid at some point of time in their lives. And taking a loan to get over a temporary financial crisis is not a bad thing at all. In fact, it can prove to be a smart move if you choose the right type of loan for a specific purpose and follow some good repayment practices. While applying for a loan, there are a few terms you often come across and EMI is one of the most common ones. Although loans have become an integral part of our lives, there is still a lot of confusion about what an EMI payment is and how it all works.

Let’s clear the air, shall we?

What is an EMI?

When you avail a loan for any purpose, it needs to be repaid through several monthly instalments of a pre-decided amount on a specific date. As the name suggests, EMIs or Equated Monthly Installments are periodic payments made to settle an outstanding loan within a given time frame. Generally, EMI is a preferred way of paying off loans as this saves the borrower from the pressure of paying the entire loan amount in one go. Knowing that a specific amount is to be paid every month also gives you peace of mind. This way, repaying the loan gets easier without having any negative impact on the finances.

Another question that comes to most people’s minds - ‘What is down payment before EMIs?’ It is the initial lump sum amount you have to pay while availing a certain type of loan like a house loan. Once the down payment is done, the remaining amount can be paid off in monthly installments.

How It Works

Sometimes, people confuse Equated Monthly Installments with variable payment plans but these are two different things. In a variable payment plan, the borrower can pay varying amounts as per their convenience. While in an EMI arrangement, a fixed amount is decided in the very beginning and it has to be paid on a specific date every month.

There are a few factors that can affect a loan’s EMIs:

This is the amount an individual has borrowed and it is one of the primary factors in deciding the EMI amount for a loan. In simple words, the higher a loan amount will be, the bigger the EMI amount is going to be.

The interest rate of a loan is also a critical factor that affects the EMIs of a loan. The EMI amount is directly proportional to the interest rate, which means the higher your interest rates are, the bigger your EMI amount will be. Generally, the interest on a loan is calculated on the basis of a number of things like the applicant’s income, repayment capacity, and credit score, among others. All these things also have an indirect impact on the EMI amount of a loan.

This is another major factor in deciding the EMI amount for a loan. Generally, the longer your tenure is, the lower your MEI amount is going to be and vice versa. However, by opting for longer loan tenure you might end up paying more interest on your loan.

There are two different types of interest rates applicable on a loan: fixed and floating. When you choose a loan with fixed interest rate, the EMI amount remains the same throughout the loan tenure. With Floating interest rate, on the other hand, the EMI amount keeps changing according to the market fluctuations and their impact on the rate of interest.

  • Loan Amount
  • Rate of Interest
  • Tenure
  • Type of Interest Rate

Now that you know all about an EMI arrangement, the main question is – how a borrower can get an idea about the possible EMI amount while availing a loan. The solution to this is ‘EMI Calculator’. No matter what type of loan you are applying for, you can use an EMI and interest calculator to get an idea and plan better. If you want to check your gold loan EMI, you will have to search for a gold loan EMI calculator. And if you are planning to avail a house loan, you can use a home loan EMI calculator.

Muthoot Finance has a wide range of loan options that you can choose from to take care of immediate and unforeseen financial needs. You can also use the Muthoot finance EMI calculator to get an approximate idea about the EMI amount before availing a loan or visit the nearest Muthoot Finance branch to know more.

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