What is EMI?
EMI (Equated Monthly Installment) is a fixed payment amount made by a borrower to a lender at a specified date each month. EMI includes both principal and interest components.
What is Reducing Balance Method?
In reducing balance method, interest is calculated on the outstanding loan balance. As you pay your EMIs, the principal reduces, and so does the interest component. This is the most common method used by banks.
What is Flat Rate Method?
In flat rate method, interest is calculated on the original loan amount throughout the tenure. The EMI remains constant, but the effective interest rate is higher than reducing balance method.
How is EMI calculated?
EMI = [P x R x (1+R)^N] / [(1+R)^N-1], where P is principal, R is monthly interest rate (annual rate/12/100), and N is tenure in months. This formula is for reducing balance method.
Can I prepay my loan?
Yes, most lenders allow prepayment. Making prepayments reduces your principal amount and overall interest burden. However, some lenders may charge prepayment penalties.
What affects my EMI amount?
EMI is affected by three main factors: loan amount (higher amount = higher EMI), interest rate (higher rate = higher EMI), and tenure (longer tenure = lower EMI but more interest).
What is Financial Year view?
Financial Year (FY) view groups payments from April to March, useful for tax planning and annual financial reporting in India. For example, FY 2024-25 runs from April 2024 to March 2026.