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EMI - Everything You Wanted to Know About EMIs

  • Highlights

  • EMIs are a fixed amount you pay lenders to repay your loan

  • EMIs consist of the principal and interest component

  • EMIs don’t change throughout the tenor except in certain situations

  • The tenor, interest rate, and loan amount affect your EMI

Along with the principal, rate of interest and tenor, a common term associated with any loan – home, personal or business – is EMI. When you avail a loan for any purpose, you have to repay it through equated monthly instalments, better known as EMIs. So, what is an EMI and how is it calculated? Read on to find the answer.

What are EMIs?

An EMI is essentially a fixed amount of money that you have to regularly pay your lender in order to repay the loan. This money is usually paid monthly on a fixed date, either through a cheque or online payment.

Additional Read: how to write a cancelled cheque

Components of EMIs

EMIs have two components – principal and interest.

Initially, the interest amount is higher than the principal. As the loan tenor progresses, the interest amount reduces while the principal amount goes up. However, with flexi loans from Bajaj Finserv, you can only pay the interest component as EMI, with the option of paying the principal at the end of the tenor. This reduces your EMIs drastically.

Moreover, pre-approved offers on various loans such as home loan, business loan and personal loan among others from Bajaj Finserv, availing finance is a hassle-free affair. All you have to do is provide some basic details and you can get your pre-approved offer.

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Additional Read: How The Bajaj Finserv Wallet App Does More Than Your Debit Card

Factors affecting EMI

There are 3 major factors that affect your EMIs:

Loan amount: It is the amount you borrow and is the primary factor that decides your EMI. The higher the loan amount, the bigger is the EMI.

Interest rate: Interest rate on your loan is another critical factor affecting the EMIs. EMIs are directly proportional to the interest rate. Lenders calculate the interest based on several factors like your income, repayment capacity, credit history, prevailing market situation, etc.

Tenor: This is the third factor that affects your EMI. Longer tenors generally mean lower EMIs and vice versa. However, longer tenors also mean a higher interest outgo.

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Does the EMI change during the tenor?

Under normal circumstances, the EMI does not change throughout the tenor. However, there are certain situations when the EMI may change, including:

Floating interest rate: If you opt for a floating interest rate, the interest changes as per the market dynamics. When the interest rates fall, so do EMIs.
Loan prepayment: Your EMI changes if you prepay a certain portion of the loan amount. When you prepay, the principal amount comes down which subsequently brings down the EMIs.
Progressive EMIs: Some lenders let you pay progressive EMIs, particularly on long-term loans. This means that you pay a certain amount as EMI initially, which increases progressively with an increase in salary. This allows you to pay off your loan faster.

Additional Read: Bajaj EMI Card vs. Credit Card: Which is the Best To Buy on EMI

Thus, EMIs are an important part of your loan. You can use online calculators to find out the EMI amount and chalk out a repayment schedule to ensure you never default on your EMIs.

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