EMI: What Is EMI (Equated Monthly Instalment)?
What is the difference between EMI and No Cost EMI? EMIs are fixed monthly payments made by a borrower to a lender to cover the cost of a loan.
Equated monthly installment (EMI) is a fixed amount of money that a borrower pays to a lender each month to repay a loan. EMIs are typically used for large loans, such as mortgages, car loans, and personal loans.
EMI is calculated on the basis of the amount of the loan, the interest rate and the duration of the loan. The EMI amount is the same each month, making it easier for borrowers to budget for their loan payments.
One of the best ways to finance large purchases is through EMIs, but it is important to understand how they work before taking out a loan.
Also, if you want to sell financial products and earn up to ₹1 Lakh every month, then check out the GroMo app now. Using the GroMo app, you can sell various EMI products like credit cards, personal loans, instant loans, and more!
In this blog post, we will explain:
- What Is EMI?
- What Is No Cost EMI?
- Which Are The 5 Best EMI Cards?
- How To Calculate EMI Using EMI Calculator Formula?
...and much more!
All these will help you understand what exactly is an EMI and what are its benefits.
Now, let's get started!
What Is EMI?
An EMI is a fixed sum of money that you pay to a lender every month to pay back a loan. An EMI is usually used for a large loan, such as a mortgage, a car loan, or a personal loan.
The EMI is calculated based on the amount of the loan, the interest rate, and the duration of the loan. The amount of the EMI is the same every month, which makes it easier for you to budget for your loan payment.
For example, if you take out a loan of Rs. 10 lakh for 5 years at an interest rate of 10%, your EMI would be Rs. 2,229. This means that you would pay Rs. 2,229 to the lender each month for 5 years to repay the loan.
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What Is No Cost EMI?
No cost EMI is a type of EMI where the borrower does not have to pay any interest on the loan. No cost EMI is typically offered by retailers on electronic goods and other high-value items.
To avail a no cost EMI offer, the borrower typically needs to have a credit card from a participating bank. The bank will pay the interest on the loan on behalf of the borrower.
No cost EMI can be a great way to purchase expensive items without having to pay interest. However, it is important to note that no cost EMI is typically only available for a limited period.
Which Are The 4 Best EMI Cards?
There are many different EMI cards available in the market. Here are 4 of the best EMI cards:
1. Bajaj Finserv™ Insta EMI Card
The Bajaj Finserv™ Insta EMI Card is a popular EMI card that offers a wide range of benefits, such as no cost EMI, no interest on EMIs for up to 24 months, and discounts on Bajaj products.
2. HDFC Debit Card EMI
The HDFC Debit Card EMI allows you to convert your debit card purchases into EMIs. This can be a great way to finance large purchases without having to apply for a separate loan.
3. IDFC FIRST Bank Easy Buy EMI Card
The IDFC FIRST Bank Easy Buy EMI Card is a premium EMI card that offers several benefits, such as a high credit limit, no cost EMI, and instant approval.
4. SBI Debit Card EMI
The SBI Debit Card EMI allows you to convert your SBI Debit card purchases into EMIs. This can be an excellent option for financing large purchases on an SBI Debit card, without the need to apply for an individual loan.
How To Calculate EMI Using EMI Calculator Formula?
The EMI calculator formula is as follows:
EMI = [P * R * (1 + R)^N] / [(1 + R)^N - 1]
Where:
P is the loan amount
R is the interest rate per month
N is the loan term in months
For example, if you take out a loan of Rs. 10 lakh for 5 years at an interest rate of 10%, your EMI would be calculated as follows:
EMI = [1000000 * 0.10 * (1 + 0.10)^60] / [(1 + 0.10)^60 - 1]
EMI = Rs. 2,229
But before we move forward, download the GroMo app to sell all these top credit cards and earn up to ₹1 Lakh every month!
How To Calculate EMI Using Excel?
You can use Excel to calculate EMI using the following steps:
Enter the following values in Excel:
Loan amount
Interest rate
Loan term in months
In the next cell, type the following EMI calculator formula:
=PMT(interest_rate/12,loan_term,loan_amount)
Where:
- interest_rate is the interest rate per month
- loan_term is the loan term in months
- loan_amount is the loan amount
Press Enter
The cell will display the EMI amount.
Example:
Let's say a loan of up to Rs. 10 lakh is obtained for a term of 5 years at a rate of 10% interest. To calculate the EMI using Excel, you would enter the following values in Excel:
- Loan amount: 1000000
- Interest rate: 10
- Loan term in months: 5*12 = 60
In the next cell, you would type the following EMI calculator formula:
=PMT(10/12,60,1000000)
Press Enter
The cell will display the EMI amount, which is Rs. 2,229.
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Which Things Can You Buy On EMI?
There are many different things that you can buy on EMI. There are different types of EMI loans available, depending on the purpose of the loan. Here are some examples of the most common types of EMI loans:
1. Home Loan EMI
A home loan EMI is a type of loan that is used to purchase a home. Home loan EMI is typically repaid over a long time, such as 20 or 30 years.
2. Car Loan EMI
Car EMI is a loan used to buy a car. They are usually repaid over a period of 3 to 5 years.
3. Personal Loan
A personal loan is a loan that you can use for whatever reason you want. Most people who take out a personal loan pay it back over a 1 to 5 year period.
4. Education Loan
Education loans are loans that are used to cover the cost of education. The repayment term of an education loan is usually between 5 and 10 years.
5. Credit Card
A credit card, also known as a payment card, is a type of card that lets you borrow money to pay for your purchases. The balance on a credit card is usually paid off over 1 to 3 years.
In addition to these large items, you can also buy many other things on EMI, such as:
1. Electronics: TVs, refrigerators, washing machines, laptops, smartphones, etc.
2. Furniture: Sofas, beds, dining tables, wardrobes, etc.
3. Appliances: Air conditioners, microwave ovens, water purifiers, etc.
4. Jewelry: Gold, silver, diamond jewelry, etc.
5. Travel: Airline tickets, hotel bookings, etc.
Benefits Of Buying Things On EMI
Making purchases on EMI has some benefits, including:
1. Affordability
EMI payments are typically spread out over some time, making it easier to afford large purchases.
2. Convenience
EMI payments are typically made through automatic debit transfer (ADT), making it convenient to repay your loan.
3. Flexibility
Many lenders offer flexible EMI options, such as the ability to choose the EMI amount and tenure.
4. Tax Benefits
In some cases, you may be able to claim tax benefits on your EMI payments.
Drawbacks Of Buying Things On EMI
Buying on EMI also has some drawbacks, including:
1. Interest
You will have to pay interest on the loan amount. The interest rate will vary depending on the lender and the type of loan.
2. Processing Fees
Many lenders charge processing fees for EMI loans.
3. Prepayment Penalty
Some lenders charge a prepayment penalty if you repay your loan early.
4. Overspending
It can be easy to overspend when buying on EMI. It is important to budget carefully and avoid buying things that you cannot afford.
Tips For Buying Things On EMI
When choosing an EMI loan, it is important to consider a few factors. Here are some tips for buying on EMI:
1. Purpose Of The Loan
What do you need the loan for?
Once you know the purpose of the loan, you can choose the right type of loan. Avoid buying on impulse. Don't buy something on EMI just because it is on offer. Make sure you need the product and that you can afford to make the EMI payments.
Before you buy something on EMI, compare prices from different retailers. This will help you get the best deal.
2. Loan Amount
How much money do you need to borrow?
Make sure you pick a loan that you can pay back. EMIs can become a burden if you are not careful. Only borrow what you need. Don't borrow more money than you need. This will help you keep your EMI payments under control.
3. Compare EMI Offers From Different Lenders
Before you buy something on EMI, compare EMI offers from different lenders. This will help you get the best interest rate and terms. The lower the interest rate, the less money you will pay in interest.
4. Read The Fine Print
Before you sign up for an EMI loan, read the fine print carefully. Make sure you understand the interest rate, processing fees, and prepayment penalty. Select a reputable lender that provides excellent customer service.
You may also negotiate with your lender to get a lower interest rate or processing fees. Read the terms and conditions carefully.
5. Budget Carefully
Make sure you can afford to make the EMI payments each month. Make sure you stick to your budget and don't buy stuff you can't afford. It is important to budget carefully and avoid overspending.
6. Repay Your Loan Early
If possible, try to repay your loan early. This will save you money on interest. Select the loan term that best suits your needs. A longer loan term will result in lower EMI payments, but you will pay more in interest over the life of the loan.
This is something you can do to save money on EMI. Choose a shorter loan term. A shorter loan term will result in higher EMI payments, but you will pay less in interest over the life of the loan. If possible, try to make prepayments on your loan.
This will reduce the outstanding loan amount and save you money on interest.
7. Have A Good Credit Score
Having a good credit score means you’ll be able to get a better interest rate for your loan. Keep track of your EMI payments. Make sure you make all your EMI payments on time. Late payments can result in penalties and damage to your credit score.
8. Maintain A Healthy Debt-To-Income Ratio
Your debt-to-income ratio is the total amount of debt you have divided by your monthly income. A lower debt-to-income ratio will make it easier to get a loan.
9. Provide All The Required Documents
When you apply for an EMI loan, you will need to provide certain documents, such as your income proof, address proof, and bank statements. Make sure you have all the required documents before you apply for the loan.
10. Transfer Your Loan To Another Lender
If you are not satisfied with your current lender, you can transfer your loan to another lender. This may help you get a lower interest rate or better terms.
11. Have A Backup Plan
In case you lose your job or experience another financial setback, have a backup plan in place to make your EMI payments.
EMI can be a great way to finance large purchases and spread the cost over a period of time. However, it is important to understand the benefits and drawbacks of buying on EMI before you make a purchase. It is also important to choose the right EMI loan and lender.
If you are not careful, EMIs can become a burden. By following the tips above, you can save money on EMI and avoid EMIs becoming a burden. By following these tips, you can buy on EMI and manage your finances responsibly.
Key Takeaways
- An EMI is the amount of money a borrower gives to a lender each month to repay a loan.
- No cost EMI means the borrower doesn't have to pay interest on their loan.
- Bajaj Finserv™ Insta EMI Card, HDFC Bank Debit Card, IDFC FIRST Bank EMI Card, and SBI Card are the 4 best EMI cards.
- Home loans, car loans, personal loans, and education loans can be bought on EMI.
- You can also buy electronics, furniture, appliances, jewelry, and travel tickets on EMI with the help of a credit card.
