Bank EMI is a term that has become very common in the financial world. It is simply the abbreviation of Equated Monthly Installment. Whenever a person takes a loan or uses a credit facility, they are required to pay the loan amount back with some additional interest charged by the bank or lender. The amount that the borrower has to repay in monthly installments is referred to as EMI. It is important to understand the concept of EMI and its benefits before taking a loan or using any other credit facility.
Understanding Bank EMI
The Bank EMI Full form is Equated Monthly Installment. It is a fixed amount that a borrower has to pay each month towards the repayment of the loan amount along with the interest charged on it. The EMI amount is calculated using a formula that takes into account the loan amount, interest rate, and loan tenure. The formula is designed in a way that the borrower has to pay the same amount every month until the loan is fully repaid.
Benefits of Bank EMI
Bank EMI offers several benefits to borrowers who take loans or use credit facilities. Some of the major benefits of Bank EMI are:
Predictability:
Bank EMI offers predictability to borrowers in terms of their monthly repayment obligations. As the amount of EMI is fixed, borrowers can easily plan their monthly expenses and can avoid any unexpected financial burden.
Ease of Repayment:
Paying EMI every month is an easy and hassle-free process. As the amount is fixed, borrowers can easily make arrangements and budget their expenses accordingly.
Lower Interest Payment:
Bank EMI helps borrowers reduce their overall interest payment as it divides the loan amount into a number of smaller payments. This, in turn, reduces the interest payment on the loan by making the principal amount smaller with every repayment.
Flexible Loan Tenure:
Bank EMI offers flexibility in terms of loan tenure. Borrowers can choose the loan tenure that suits them the best depending on their financial condition and repayment capacity. A longer loan tenure means lower EMI and vice versa.
Types of Bank EMI
There are two types of Bank EMI, which are Flat Rate EMI and Reducing Balance EMI.
Flat Rate EMI:
In flat rate EMI, the interest charged is calculated on the entire loan amount throughout the loan tenure. This means the borrower has to pay a fixed amount of EMI every month irrespective of the repayment status. Flat rate EMI is suitable for short-term loans or loans with fixed repayment terms.
Reducing Balance EMI:
In reducing balance EMI, the interest charged is calculated on the outstanding loan amount after deducting the principal amount repaid. The EMI amount reduces with every repayment, and so does the interest charged on the loan. Reducing balance EMI is suitable for long-term loans and offers better interest rates and lower overall interest payment.
Conclusion
Bank EMI is an important concept that borrowers should understand before taking any loan or using a credit facility. It offers predictable repayment obligations, lower interest payment, and flexibility in loan tenure. Borrowers should carefully evaluate their repayment capacity and choose the type of EMI that suits their financial condition the best. It is always advisable to consult a financial expert before taking any loan to avoid any financial burden in the future.