1. What is EMI? EMI (Equated Monthly Installment) is a fixed payment made by a borrower to a lender at a specified date each calendar month.
2. How is EMI calculated? Using the formula: EMI = [P * r * (1 + r)n] / [(1 + r)n - 1], where P = principal, r = monthly interest rate, and n = number of payments.
3. What does an EMI consist of? Each EMI consists of both principal and interest components. In the early stages, interest takes a larger share, but gradually principal takes over.
4. Can EMI change over time? Yes, in floating rate loans, the EMI amount may change based on interest rate fluctuations.
5. How does loan tenure affect EMI? Longer tenures lead to smaller EMIs but higher total interest paid, while shorter tenures have higher EMIs but save on interest overall.