What is EMI: Full Form, Meaning, Calculation, and How it Works

Learn what in the full form of EMI, how it works, and why it matters in banking and financial planning.
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What is EMI: Full Form, Meaning, Calculation, and How it Works
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5 min read
31 May 2025

Buying something big—like a phone, fridge, or even a vacation—can feel heavy on your pocket. That’s where EMI steps in. With Equated Monthly Instalments, you don’t need to pay the full amount upfront. You can split the cost into easy monthly payments and enjoy what you need, now.

Let’s break it down: what EMI really means, how it works, and how tools like the Bajaj Finserv Insta EMI Card can help you shop smarter and manage your money better.

What is of EMI?

EMI stands for Equated Monthly Instalment.
It’s a fixed payment you make every month to repay a loan or a big purchase. Each EMI includes two parts:

  • Principal – the original amount you borrowed
  • Interest – the extra cost charged by the lender

With EMI, you don’t need to delay your plans. Whether it’s buying a phone or booking that dream holiday, you can pay bit by bit, month after month.

Check your pre-qualified card loan offer in just 2 steps – enter mobile & OTP.

Insta EMI Card
Insta EMI Card

Importance of EMI (Equated Monthly Instalment)

EMI makes life easier by turning big purchases into bite-sized monthly payments. It gives you:

  • A clear repayment plan
  • A fixed monthly budget
  • Freedom to afford more without using all your savings

Banks and NBFCs (like Bajaj Finserv) use EMIs to offer loans across categories—home, car, education, personal use, and consumer durables.

Use the EMI Network Calculator to see how much you’ll pay each month.

How does EMI work?

Here’s how EMIs make borrowing simple:

  1. You borrow a certain amount from a lender.
  2. You agree on the interest rate and repayment period (like 6, 12, or 24 months).
  3. You pay a fixed amount each month, covering both principal and interest.

There are two ways interest is calculated on EMIs:

  • Flat-rate method: Interest is charged on the total loan amount for the full period.
  • Reducing balance method: Interest is charged on the remaining principal every month. As the loan amount goes down, so does the interest.

Reducing balance method usually saves more money.

How to calculate EMI?

There are two popular ways:

1. Flat Interest Method

  • Interest is charged on the total loan for the full tenure.
  • Formula:
    EMI = (Principal + Total Interest) ÷ Number of Months
  • Example:
    ₹1,00,000 loan at 10% for 3 years = ₹30,000 interest
    EMI = ₹1,30,000 ÷ 36 = ₹3,611

2. Reducing Balance Method

  • Formula:
    EMI = [P x R x (1+R)^N] ÷ [(1+R)^N – 1]
    Where:
    • P = Principal
    • R = Monthly interest rate
    • N = Number of instalments

Try it yourself with the EMI Calculator.

What are the types of EMIs?

Lenders offer two main EMI repayment options:

1. EMI in Arrears (Standard EMI)

  • First EMI starts after you get the product or loan.
  • Good if you want to start repaying later.

2. EMI in Advance

  • First EMI is paid upfront, before receiving the product.
  • This amount goes toward reducing your principal.
  • Can help lower the total interest.

Want to skip the down payment altogether? Shop with zero down payment using the Insta EMI Card.

What are the components of EMI?

Your EMI is made of two simple parts:

  • Principal: The actual amount borrowed
  • Interest: The fee for borrowing, calculated monthly

Each EMI reduces your loan bit by bit. In the beginning, you mostly pay interest. Later, you start paying off more of the principal.

Factors that can affect your EMI amount

Several factors decide how much you pay each month:

Factor

Impact on EMI

Loan Amount

Bigger loans = Higher EMIs

Interest Rate

Higher rate = More interest to pay

Loan Tenure

Longer tenure = Smaller EMIs but more interest overall

Type of Interest

Fixed or reducing rate changes the EMI pattern

Down Payment

A higher down payment reduces EMI

 

Tip: Choose a tenure that balances affordable EMIs with lower total interest.

How EMI helps in financial planning?

EMIs let you:

  • Buy what you need without saving for years
  • Plan your monthly budget with predictable payments
  • Build credit by paying on time

From furniture to flight tickets, EMI options make spending smarter, not stressful.

Explore easy EMIs for over 1 million+ products.

EMI vs Monthly Instalment – What’s the difference?

The terms are close, but not the same.

EMI

Monthly Instalment

Fixed amount for loan repayment

Any regular monthly payment (like bills)

Includes principal + interest

May not include interest

Time-bound loan schedule

General recurring cost

Pros and cons of choosing EMI

Pros

Cons

Makes big purchases affordable

Total cost is higher due to interest

Easy to manage with fixed payments

Missing EMIs can hurt credit score

Flexible tenure options

Early closure may have charges


With the Bajaj Finserv Insta EMI Card, you get a limit of up to ₹3 lakh, so you can shop stress-free and repay in flexible tenures.
Explore flexible repayment options as per your budget.

How to buy products on easy EMIs?

You don’t need to visit a bank or wait days for approval. With the Bajaj Finserv Insta EMI Card, you can:

  1. Check your eligibility online – just enter your mobile number
  2. Get a limit of up to Rs. 3 lakh
  3. Shop at 1.5 lakh+ partner stores (online or offline)
  4. Choose Easy EMI options – from 3 to 60 months

Money in 24 hours. Only 2 clicks to check your card offer.

Final Thoughts

EMI is more than a financial term—it’s a smart way to own things you love without burning a hole in your pocket. And with options like the Bajaj Finserv Insta EMI Card, it’s easier than ever to buy now and pay later.

Check your Insta EMI Card eligibility in 2 simple steps – enter your mobile number and OTP to view your offer.

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

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Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Frequently asked questions

Is EMI different from loan?

Yes, EMI (Equated Monthly Instalment) and loan are different. A loan is a sum of money borrowed from a bank or financial institution. EMI is the fixed payment a borrower makes to the lender at a specified date each month. EMIs are used to pay off both the principal and interest on a loan over a specified period, thus ensuring the loan is fully paid off by the end of this period.

What happens if I miss an EMI payment?

Missing an EMI payment can lead to late fees, increased interest, and negative impacts on your credit score. Repeated defaults may result in legal actions or repossession of collateral, depending on the loan agreement terms.

Are there online tools or apps available to calculate EMIs easily?

Yes, many online EMI calculators and mobile apps are available to calculate EMIs. These tools allow users to input loan amount, interest rate, and tenure to instantly determine the monthly instalment amount, making financial planning easier.

What is the purpose of EMI in financial transactions?

EMI, or Equated Monthly Instalment, allows borrowers to repay loans in regular, fixed payments over a specified period. This helps manage large expenses by breaking down the total amount into more affordable, predictable monthly payments.

Are EMIs applicable to all types of loans and financing?

Yes, EMIs can be applied to various types of loans, including personal loans, home loans, auto loans, and consumer durable loans. This standardised repayment method simplifies budgeting and ensures consistent payments over time.

Is there a difference between EMI and SIP (Systematic Investment Plan)?

Yes, EMIs are fixed monthly payments for loan repayment, while SIPs involve regular investments in mutual funds. EMIs help in debt repayment, whereas SIPs are a way to grow savings through disciplined investment.

Explain the concept of "No Cost EMI" and how it works.

"No Cost EMI" allows buyers to pay for purchases in instalments without additional interest charges. The interest is typically borne by the retailer or financier, making the product cost the same as a lump-sum payment.

What is the formula to calculate EMI?

The EMI calculation formula is: EMI = [P x R x (1+R)^N] / [(1+R)^N-1]

Where, P is the principal loan amount, r is the monthly interest rate, and n is the number of instalments.

Are there any tax benefits associated with EMI payments?

Yes, certain EMI payments, such as those for home loans, offer tax benefits. Under Indian tax laws, both principal repayment and interest payments on home loans can be claimed for tax deductions under specific sections of the Income Tax Act.

What is the full form of EMI in loan?

EMI stands for Equated Monthly Installment. It's a fixed amount paid each month towards a loan, which includes both principal and interest. This ensures that the loan is repaid over a specific period.

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