EMI Full Form in Bank | Full Form of EMI

Full Form of EM

EMI stands for Equated Monthly Installment. ( full form of emi )
It's a hard and fast payment amount which a borrower pays to a moneylender at a selected date of every month for a selected period of your time.
Emi consists of a principal component and interest component that a borrower is meant to pay to lender over a selected number of years to pay off the loan fully. So, it's an unequal combination of principal and interest rate.
If you're getting to take loan from a bank, you want to understand how banks compute the EMI in order that you'll evaluate various loan options of various banks and choose one as per your financial constraints.

How to calculate EMI

Interest Rate : Rate of interest charged by the moneylender, e.g. Bank.
Loan Amount (principal loan) : The amount borrowed.
Tenure of the Loan : The time provided by the lender to repay the whole loan including the interest.

The interest is calculated on the entire principal loan without considering the very fact that with each EMI the principal amount is getting reduced.
For Eg, a person wants to shop for a car and takes a automobile loan of three lakh, at a flat rate of interest 12% and has got to pay off it in 3 years then the EMI are often calculated as shown below:

EMI : Principal amount (300,000) is split by 36 months + 12% of principal amount divided by 12 months = 8333+3000=11.333
Flat rate of interest is typically applied on short term loans like automobile loan and two-wheeler loan.

In case of Diminishing balance rate of interest, the interest amount varies monthly as for the first month interest is calculated on the entire principal loan and for the next month’s interest is calculated on the outstanding loan amount.
The formula or method to calculate the reducing interest amount is given below:

Principal Loan Amount = 300,000
Diminishing rate of Interest = 12%
Duration : 3 year Interest for first month = loan amount (300, 000) * (1/12*) * (12/100) =3000
Interest for second month= (outstanding loan amount) * (1/12) * (12/100)

Advantages of EMI

Power to Buy :
- It enables you purchase items beyond your monetary reach by allowing you pay in installments.
Flexibility :
- You'll consider different EMI options offered by different banks and choose the quantity that you simply want to pay as installments and may also choose the tenure of loan as per your financial position.
No middleman :
- You directly pay the EMI to the lender without the effort of contacting a middleman.
Protects Savings :
- It doesn't hurt your savings as you're required to pay minimum regular payments instead of payment amount.