LoansFinancial Glossary
EMI (Equated Monthly Instalment)
Definition
A fixed monthly payment made to a lender to repay a loan over a set tenure. Each EMI comprises both principal and interest components, calculated using the reducing balance method. The interest portion is higher in early EMIs and reduces over time as the outstanding principal decreases.
Why It Matters
Your EMI determines your monthly cash flow commitment for years or decades. Financial advisors recommend that total EMIs (including home loan, car loan, and personal loans) should not exceed 40-50% of your monthly take-home income to maintain financial health.