What is meant by an EMI (Equated Monthly Instalment)?
An EMI is the monthly amount to be repaid to the bank or financial institution against a loan amount borrowed for a fixed period of time. An EMI has two components, the principal component and the interest component. There are two methods – reducing balance method and the monthly reducing balance. The Reducing Balance method reduces the principal amount already paid from the outstanding loan amount. Every time you make a payment, you pay interest on that part of the original principal sum that has remained unpaid till then. The loan carrying the lower EMI for the same tenure is the cheaper option.
