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What is EMI?

What is EMI?


The full form of EMI is Equated Monthly Installment. Although in literal terms EMI means monthly equal installment, in most cases, people understand EMI to be the installment paid through credit cards for purchasing any product.

In the actual financial context, if you agree to pay a certain amount of money to a bank on a monthly basis, it is called EMI. Each month, on a specific date according to the calendar, the borrower pays a predetermined amount to the lender, which constitutes the EMI. These equal monthly installments include both interest and principal repayment.

Similarly, there are various types of financial services. For instance, if you borrow some money from a bank and repay it to the bank in equal installments along with interest, it is termed as EMI.

Again, if you deposit money in a bank through a DPS for a specific period, the amount you deposit each month is also termed as EMI.

Likewise, if someone makes a big purchase using a credit card and has an agreement with the bank for installment payment, they can avail the EMI facility for a specified period. Under this, they can repay the amount for their product through monthly equal installments over a predetermined period.

One advantage of EMI for borrowers is that they know exactly how much they have to pay for their loan each month, making personal budgeting easier.

However, transactions where the amount of money involved is not predetermined or is variable are generally not referred to as EMI.