EMI: Equated Monthly Installment
<
p>The
full form of
EMI is “
Equated Monthly Installment“. It is a fixed payment amount that a borrower pays a lender on a specific
date of each
month for a specific period of
time. The equivalent monthly installments (EMI) are used to
pay off the interest and principal amount, during a specific tenure, so that the
loan is completely fully paid off along with the interest. The interest
rate is the
rate of interest charged by the moneylender (e.g. Bank), where the principal amount is the amount borrowed and the tenure of the
loan is the
time granted by the lender to
pay the entire loan, including interest.
p>Formula to calculate EMI<p>The formula for EMI (in arrears) is:p><p> or, equivalently,p><p>where:
P is the principal amount borrowed, A is the periodic amortization payment, r is the periodic interest rate divided by 100 (annual interest rate
also divided by 12 in
case of monthly installments), and
n is the
total number of payments (for a 30-year loan with monthly payments
n = 30 × 12 = 360).p>Benefit<p>The
main benefit of EMI is that it offers the
power to
buy beyond its monetary reach, which allows it to pay in installments; there are no intermediaries; therefore, you pay the EMI directly to the creditor without the hassle of contacting an intermediary.
EMIs differ from variable payment plans, in which the borrower can pay higher payment amounts, at his discretion. In EMI plans, borrowers only have a fixed payment amount
per month.p><p>Another advantage of an EMI for borrowers is that they
know exactly how much
money they will
need to pay off their loans each month, which facilitates the personal budgeting process. If you
plan to obtain a loan from a bank, you
must understand how banks calculate the EMI to be
able to evaluate various loan
options from different banks and choose
one according to your financial limitations.p>
Posted on 04 Sep 2024, this text provides information on Business Studies related to Banking Full Forms in Business Studies. Please note that while accuracy is prioritized, the data presented might not be entirely correct or up-to-date. This information is offered for general knowledge and informational purposes only, and should not be considered as a substitute for professional advice.