Question 1

What is an EMI and how does it work?

Accepted Answer

An EMI (Equated Monthly Installment) is a fixed monthly payment you make towards a loan. Each EMI includes both interest and principal repayment so that the loan is fully paid off over the agreed period. In other words, you pay the same amount every month, and over time the interest portion decreases while the principal portion increases until the debt is cleared.

Question 2

How is EMI calculated for a loan?

Accepted Answer

EMI is calculated based on the loan principal, the interest rate, and the loan tenure (the number of months to repay). These factors are plugged into a standard formula to compute a uniform monthly payment. Essentially, a larger loan amount or higher interest rate will raise the EMI, whereas a longer repayment period will lower the monthly EMI (though you’ll pay more interest overall).

Question 3

What is an EMI calculator and how do I use it?

Accepted Answer

An EMI calculator is an online tool that quickly computes your monthly loan payment. You input the loan amount, interest rate, and tenure, and it instantly shows the EMI you would have to pay. It’s a handy planning tool – by trying different values, you can compare loan options and know in advance what your monthly installment will be, helping you choose a loan that fits your budget.

Question 4

Does loan tenure affect the EMI amount?

Accepted Answer

Yes. A longer loan tenure generally means a lower EMI, because the total amount is spread over more months. For example, extending a loan from 3 years to 5 years will reduce the monthly payment. However, keep in mind that while the EMI will be smaller, you will end up paying more interest in total over the longer period. Conversely, a shorter tenure makes the EMI higher but reduces the overall interest cost.

Question 5

Can my EMI change during the loan tenure?

Accepted Answer

If your loan has a fixed interest rate, your EMI will remain the same for the entire term. If it has a floating (variable) interest rate, the EMI can change over time when the interest rate is revised by the lender. In a floating-rate loan, an increase in interest rates could raise your EMI (or lengthen the tenure), while a decrease in rates could lower your EMI. Always confirm with your lender how rate changes are handled for your EMI.

Question 6

What happens if I miss an EMI payment?

Accepted Answer

Missing an EMI payment can lead to late fees and penalty interest, which increases your overall loan cost. It will also negatively impact your credit score, making it harder to get new credit in the future. For secured loans like a car loan or mortgage, if you default on multiple EMIs, the lender has the right to repossess the asset to recover the dues. It’s best to inform your lender in advance if you foresee any trouble and discuss possible solutions to avoid default.

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