EMI full form in banking can refer to different things depending on where you’re located in the world.
For example, in India EMI refers to “equated monthly installment” while in Europe it refers to “electronic money institutions”.
Since we have covered electronic money institutions in great detail in past articles, we’re going to explain EMI in the Indian context in this article.
This article is part of our free series on banking in Asia, ranging from opening a corporate bank account in Singapore to banking regulations in Thailand.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- EMI Full Form in Banking
- How Does an Equated Monthly Installment Work?
- How Are EMI Calculated?
- Frequently Asked Questions
- Ready to Explore Your Options?
EMI Full Form in Banking
EMI full form in banking in India refers to equated monthly installments for the repayment of a loan. More specifically, EMI refers to the monthly payment against an outstanding loan. These payments are made on an equal and fixed basis, including both principal and interest payments. As with loan repayments elsewhere in the world, the interest payments gradually decrease while the interest payments gradually increase.
How Does an Equated Monthly Installment Work?
An equated monthly installment works by taking the total amortized value of a loan and dividing it by the total payment period. In other words, the combined value of the principal amount of the loan and the interest paid divided by the loan tenure. We will take a closer look at this calculation in the following section of the article.
How Are EMI Calculated?
EMI (equated monthly installment) is calculated based on the terms of each individual loan. More specifically, it includes the loan amount (or principal), tenure (or term), and interest rate (monthly or annual). We’ll discuss each of these in greater detail below.
Principal Loan Amount
Principal loan amount is one of the key factors that influences EMI. In fact, along with the tenure of the loan, the loan amount is the single largest determining factor of the monthly payment amount.
Loan Tenure in Months
Loan tenure has a dramatic impact on the monthly payment amount as it will determine over what period the balance of the loan is repaid. In other words, how long will the borrower have to repay the amount that they borrow from their financial institution.
Annual Rate of Interest
Annual rate of interest refers to the agreed interest that the customer will pay the bank for the ability to borrow the requested amount. Depending on the jurisdiction, the bank and the terms of the financing, interest rates can be subject to change. As a loan is gradually repaid, the amount of interest paid to the bank reduces and the principal amount increases, gradually decreasing the amount owed by the customer over time.
Monthly Interest Rate
Monthly interest rate refers to the monthly calculation of the annual percentage yield (APY) divided by 12 months. This gives the borrower the exact amount of interest they pay on a monthly basis.
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Frequently Asked Questions
Below are four of the most common questions that we receive from people looking into what an EMI full form in banking is. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
What Is the Full Form of EMI?
The full form of EMI in India is equated monthly installment. This refers to the monthly payment a borrower makes when they agree to financing terms with a financial institution. Not surprisingly, the EMI will depend on several key factors, including the loan amount, tenure, interest rate, and whether the customer pays any portion of the balance in advance.
How Is EMI Calculated?
EMI is calculated based on the total borrowed, the agreed rate of interest, the term (or tenure) of the loan, and how often the balance is recalculated and reflected in the repayment schedule.
What Is an EMI Payment?
An EMI payment refers to a fixed monthly payment that contributes to paying down the outstanding balance on a loan in India. The term EMI is short for equated monthly installment, which is the recurring monthly payment the customer makes to the financial institution.
What Is Monthly EMI?
Monthly EMI refers to payments that an individual makes to a financial institution to repay a loan. The EMI is a payment that is made every month until the balance of the loan is zero.
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