EMI or Equated Monthly Instalment is the amount that an individual needs to pay towards the repayment of a loan. It is a popular method of repaying loans such as home loans, car loans, personal loans, consumer durable loans, and more. The concept of EMI is simple, and it has made it easier for individuals to purchase products and services that they cannot afford with cash payment.
EMI meaning
EMI means an amount that a borrower needs to repay to the lender every month until the loan gets fully repaid. It is a combination of the principal amount, the interest rate charged on the principal amount, and the tenure of the loan. The amount of EMI that one has to pay depends on these factors.
The EMI is calculated based on the loan amount, interest rate, and tenure of the loan. It is a fixed amount that one has to pay every month. The amount of EMI will be higher for bigger loan amounts, higher interest rates, and shorter loan tenures. EMI is the most popular method of loan repayment in India.
Consumer durable loans
Consumer durable loans are a type of loan that is offered to individuals who want to purchase consumer durables such as televisions, refrigerators, washing machines, air conditioners, and more. These loans are specifically designed to help individuals purchase consumer durables that are expensive and cannot be purchased with cash payments.
Consumer durable loans can be availed of from banks, NBFCs, and other financial institutions. The interest rates charged on these loans are higher than other types of loans. The tenure of these loans can range from 1 month to 60 months.
EMI made simple
EMI has made it easy for individuals to purchase products and services that they cannot afford with cash payments. It has also made it easy for individuals to repay loans. The concept of EMI is simple, and it is easy to understand. Here’s how it works:
Let’s say you want to buy a television worth Rs. 30,000, and you do not have the cash to pay for it. You can apply for a consumer durable loan from a bank or an NBFC. The bank approves your loan application and offers you a loan of Rs. 30,000. The interest rate charged on the loan is 10% per annum, and the loan tenure is 12 months.
The bank calculates the EMI you have to pay based on these factors. The EMI for this loan amount with these terms will be Rs. 2,648. You have to pay this amount every month for the next 12 months. The total interest you will pay on the loan is Rs. 1,773, and the total amount you will pay back to the bank is Rs. 31,773.
Tips for choosing the right EMI
Choosing the right EMI is crucial because it determines the amount of money you have to pay every month. Here are some tips to help you choose the right EMI:
- Choose the right loan amount: Choose a loan amount that is enough to purchase the product or service you want but not too high. The higher the loan amount, the higher the EMI amount.
- Choose the right loan tenure: The loan tenure is the period for which you repay the loan. A longer tenure means lower EMI amounts, but you end up paying more interest. A shorter tenure means higher EMI amounts, but you pay less interest.
- Choose the right interest rate: Choose a lender that offers a lower interest rate. The interest rate determines the amount of interest you have to pay on the loan. A lower interest rate means you pay less interest.
- Calculate your EMI: Before availing of a loan, calculate your EMI. This will help you determine if you can afford to pay the EMI amount every month.
Benefits of EMI
EMI has several benefits for consumers. Some of them are:
- Easy repayment: EMI makes loan repayment easy. You do not have to pay a lump sum amount; instead, you can pay smaller amounts every month.
- Affordability: EMI gives individuals the opportunity to purchase products and services that they cannot afford with cash payments.
- Structured repayment: EMI is a structured repayment method, which means there is a fixed amount that needs to be paid every month. This helps individuals plan their expenses better.
- Helps build credit score: Paying EMIs on time can help individuals build their credit score. This is because lenders check the credit score before approving a loan.
- Convenience: EMI is a convenient method of repayment. You can pay your EMI online using various platforms such as net banking, mobile banking, or UPI.
Conclusion
EMI has made loan repayment easy and affordable for consumers. It has given individuals the opportunity to purchase products and services that they cannot afford with cash payments. When choosing an EMI, it is essential to consider loan amount, tenure, interest rate, and EMI amounts. Calculating your EMI before availing of a loan can help you determine if you can afford to pay the EMI amount every month. With EMI, it is easier than ever to purchase consumer durables and repay loans.
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