Definition
EMI (Equated Monthly Instalment)
An EMI is the fixed monthly payment you make to repay a loan, combining both principal and interest.
An EMI is a level monthly payment that repays a loan over its tenure. Each EMI has a principal part and an interest part. In the early years, most of the EMI goes toward interest, and only later does the principal component dominate — a pattern shown in the loan's amortization schedule.
The EMI amount depends on the loan amount, interest rate and tenure. A longer tenure lowers the monthly EMI but increases total interest paid; a shorter tenure does the opposite.
Making prepayments, especially early in the loan, reduces outstanding principal and can save substantial interest. Most lenders allow EMIs to be auto-debited via a NACH mandate.
Related terms
- Loan AmortizationAmortization is the process of paying off a loan through scheduled instalments, with each payment split between interest and principal.
- Fixed vs Floating Interest RateA fixed-rate loan keeps the same interest rate throughout, while a floating-rate loan's rate moves with a benchmark over time.
- Prepayment & ForeclosurePrepayment is paying part of a loan ahead of schedule, and foreclosure is repaying it fully before the tenure ends; both reduce interest, subject to any applicable charges.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.