How EMI works
An EMI (Equated Monthly Instalment) is the fixed amount you pay your lender every month until the loan is cleared. Each EMI has two parts — interest and principal. Early on, most of the EMI goes towards interest; as the outstanding balance falls, more of each payment chips away at the principal.
EMI, tenure and total interest
The same loan can cost very different amounts depending on tenure. Stretching a loan over more years lowers the monthly EMI but increases the total interest you pay. If you can comfortably afford a higher EMI, a shorter tenure usually saves a significant amount overall. Prepaying part of the principal whenever you have surplus cash also cuts total interest sharply.
Before you borrow
- Check the processing fee and whether it's added to the loan or charged upfront.
- Ask whether the rate is fixed or floating, and how floating rates reset.
- Confirm there are no prepayment or foreclosure charges on floating-rate loans (RBI bars them for individuals).