Street Smart Finance
Easy Monthly Installment (EMI)
An Equated Monthly Instalment (EMI) is a fixed amount that you pay every month when you take a loan, such as for a phone, laptop, bike, or even education or home loans. Each EMI includes a part of the original amount borrowed (the principal) and a part of the cost of borrowing (the interest)
Calculating and Understanding EMI
When you start repaying a loan, the beginning EMIs mostly cover interest, and only a small part goes toward the principal. Over time, as the outstanding loan balance reduces, more of each EMI goes toward paying off the principal, while the interest part decreases . Although the monthly amount doesn’t change, the composition shifts gradually this is called the reducing‑balance method, and it’s more borrower-friendly compared to flat‑rate methods.
Understanding EMI helps you make smart choices about borrowing. EMI depends on three main things: the loan amount, the interest rate, and the repayment tenure (how long it lasts) (hsbc.co.in). A longer tenure lowers the EMI but increases total interest paid; a higher interest rate raises monthly EMI; a higher down‑payment or smaller principal reduces your EMI. Knowing this helps you take a loan that fits your budget and avoid overcommitting financially.