In this article, we are going to know EMI full form.
EMI Full Form
What Is The EMI Full Form?
The Full Form Of EMI is Equated Monthly Installment.
Below We Are Going To Explain The Meaning Of EMI,
Meaning Of EMI
What Is The Meaning Of EMI?
The Meaning Of EMI,
EMI stands for Equated Monthly Installment. It is a fixed payment amount that a borrower pays to a moneylender at a specific date of each month for a specific period of time. EMI consists of a principal component and interest component that a borrower is supposed to pay to the lender over a specific number of years to pay off the loan in full.
So, it is an unequal combination of principal and interest rates. If you are planning to take a loan from a bank, you must understand how banks work out the EMI so that you could evaluate various loan options of different banks and chose one as per your financial constraints.
See This Also: What Is PWD Full Form? Find Out The Full Form Of PWD.
Below We Are Going To Explain The Abbreviation Of EMI,
Abbreviation Of Equated Monthly Installment.
What Is The Abbreviation Of Equated Monthly Installment?
The Abbreviation Of Equated Monthly Installment Of EMI.
How to calculate EMI
The calculation of an EMI depends on three factors which are as follows:
- Interest Rate: Rate of interest charged by the moneylender, e.g. Bank.
- Loan Amount (principal loan): The amount borrowed.
- Tenure of the Loan: The time provided by the lender to repay the entire loan including the interest.
- Flat interest rate:
The interest is calculated on the whole principal loan without considering the fact that with each EMI the principal amount is getting reduced.
For example, a person wants to buy a car and takes a car loan of 3 lakh, at a flat interest rate 12% and has to pay off it in 3 years then the EMI can be calculated as shown below:
Principal amount: 300,000
A flat rate of interest: 12%
Total duration: 3 years
EMI: Principal amount (300,000) is divided by 36 months + 12% of principal amount divided by 12 months = 8333+3000=11.333
A flat rate of interest is usually applied on short term loans such as car loans and two-wheeler loans.
Diminishing balance interest rate:
In the case of Diminishing balance Interest rate, the interest amount varies each month as for the first-month interest is calculated on the whole principal loan and for the subsequent months, interest is calculated on the outstanding loan amount. The formula or method to calculate the reducing interest amount is given below:
Principal Loan Amount= 300,000
Diminishing rate of Interest=12%
Duration: 3 year Interest for first month = loan amount (300, 000)*(1/12*)*(12/100) =3000 Interest for second month= (outstanding loan amount)*(1/12)*(12/100)
- Power to Buy: It enables you to buy items beyond your monetary reach by allowing you to pay in installments.
- Flexibility: You can consider different EMI options offered by different banks and decide the amount that you want to pay as installments and can also choose the tenure of the loan as per your financial position.
- No middleman: You directly pay the EMI to the lender without the hassle of contacting a middleman.
- Protects Savings: It does not hurt your savings as you are required to pay minimum regular payments instead of a lump sum amount.
Frequently Asked Question:
How is EMI calculated?
The mathematical formula for calculating EMIs is: EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where P stands for the loan amount or principal, R is that the rate of interest per month [if the rate of interest once a year is 11%, then the speed of interest are going to be 11/(12 x 100)], and N is that the number of monthly installments.
What is the difference between EMI and interest?
Your equated monthly installment or more commonly referred to as the EMI is that the amount you owe to the lender monthly. It includes a part of principal repayment and interest due. Simple Interest is the rate of interest applicable to the loan taken. It is simply the interest due added to the principal amount.
What is EMI in India?
EMI is the abbreviation for Equated Monthly Installment. Home Loan EMI is the monthly repayment that the borrower should make to repay the home loan as per the amortization schedule.
What is EMI and down payment?
The rest of the money of that product is paid by equated monthly installments or EMI. The amount which you pay on your own is referred to as down payment whereas the rest of the money which you pay the bank in monthly installments is known as EMI. If you’re taking a term loan then you simply need to pay the EMI.
What is EMI process?
An EMI may be a fixed payment amount made by a borrower to a lender at a specified date each month. Equated monthly installments are wont to pay off both interest and principal monthly in order that over a specified number of years, the loan is paid off fully.
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