EMI stands for Equated Monthly Installments.Â Â EMI is monthly basis repayment of the loan amount taken. The loan amount can be home loan, car loan or personal loan that is paid back through a series of monthly payments. EMI is in the form of post dated cheques drawn in favour of lender. They are paid until the total amount due is paid up. If loan amount increases the EMI amount increases too and if time period increases the EMI amount decreases.
How is EMI calculated?
EMI is made up of two variable components- principal amount and interest rate. The EMI is fixed but not the components. The component of interest amount is higher in initial years and decreases over the years. The component of principal amount is lower in initial years and increases over the years.
For this reason, if you consider pre-payment, you should do it in early years as you save on interest rate.