What is EMI and How is it Calculated

What Is EMI & How Is It Calculated? – Loaney

Borrowing loans have gained a lot of popularity in the past few years. Loans, these days, can be borrowed for a variety of purposes. A few loans are lent against security while some are unsecured debts. The types of loans available to people in the present times make it possible for everyone to find the right loan as per their requirements. No matter what type of loan you choose, some terms will always be related to it. A principal amount, interest rate, repayment period are some common words that you will hear everywhere when applying for a loan. Another important term that is associated with a loan is EMI. So here we discuss what is EMI and how the repayment works for an EMI.

EMI is not a very new term. We have all heard of it, read it, and even used this term. EMI is no longer a term that is used only by finance experts or bankers. It is also not just a term that is used for loans or credits that are borrowed from banks and other financial institutions. 

But if you are also faced with questions like what is EMI, what is a no-cost EMI, how to calculate loan EMI, how credit card EMI works, etc, then this article will solve all your doubts. In this article, we will be discussing detailed answers to all your questions including how to calculate EMI for a home loan, how debit card EMI works, if EMI is good or bad for the borrowers, and many more. 

Towards the conclusion, we have placed the most common questions regarding EMI, which will help you clear any more doubts that you have after going through the information shared in this article. 

What Is Loaney?

Loaney is one of India’s most reliable online platforms for borrowing instant personal loans. If you are aware of what a personal loan is, then you must also know of its various features. Loaney offers personal loans at a low-interest rate and for a short repayment period of about 2 months. The clients can borrow small cash loans from Loaney without pledging collateral or presenting a guarantor. Not much paperwork is required. The only documents that the applicant requires are an Aadhar card linked with the mobile number of the applicant, a PAN card, a picture of themselves, and a bank account with an internet banking facility. By using Loaney, the client can not just apply for and get their loan approved within a few minutes but also be assured of the security of their data. 

What Is EMI?

Let us now consider the question at hand, what is EMI. EMI stands for Equated Monthly Installments. The equated monthly installment is an amount that is fixed by the loan provider or money lender, which has to be paid on a specific date every month by the borrower. The equated monthly installment or EMI is one part of the equally divided amount that needs to be paid by the borrower after a specified period to the loan provider. The total amount adds up to the principal amount of the loan borrowed and the interest charged on the loan.

The EMI or the equated monthly installment depends on four factors that include the principal amount borrowed by the applicant, the rate of interest charged by the moneylender or bank, the repayment tenure of the loan, and the monthly or annual resting period. These four factors play a major role in influencing how the equated monthly installments on a loan are calculated. 

EMIs or equated monthly installments have two major components. These are the principal repayment and interest. The interest rate is the highest in the first equated monthly installment while the principal lowest. In the final equated monthly installment, the principal is highest whereas the interest is the lowest. 

How Does EMI Work?

Equated monthly installments are different from variable payment plans. Using the variable payment plan, the borrower can pay a higher amount at their own discretion. Using the EMI or equated monthly installment plan, the borrower has to pay a fixed amount every month. Equated Monthly Instalments are a better option for both borrower and the loan provider. This is because the borrower is aware of the amount that he has to pay every month and can so plan their budget. An EMI is a better option for moneylenders and loan providers too. The monthly payments from the borrowers ensure a stable and regular income stream for them as well. 

EMIs remain constant through the course of the entire loan. The equated monthly installment can change during the repayment tenure of a loan only in the following cases:

  • Floating interest rate: When you borrow a loan at a floating interest rate, the rate changes as per the market dynamics hence changing the EMIs.
  • Prepayment of the Loan amount: If you prepay a certain amount of the loan, the EMI changes as the principal amount has come down. 
  • Progressive EMIs: A lot of loan providers and moneylenders allow the borrower to pay a progressive EMI, especially on long-term loans. This type of EMI lets you pay off your loan faster as you pay an initial EMI and then the EMI increases over time. 

What Is A No Cost EMI?

We have walked you through what is EMI and how EMI works. In this section, we will be taking a look at what a no-cost EMI is. No cost EMI is an offer made to the borrower, where they are not supposed to pay any interest. Only the principal amount has to be paid in equally divided installments. No interest is charged over and above the principal cost. 

How To Calculate EMI?

Let us now take a look at how to calculate EMI. The equated monthly installments or EMIs can be calculated in two ways. The two methods of calculating equated monthly installments are the flat-rate method and the reducing-balance method which is also called the reduce-balance method. We will be discussing both of these methods in this section. 

Flat rate method for calculating equated monthly installments: In this method, the principal loan amount and the interest on the principal are added together and then divided by the number of periods multiplied by the number of months.

The reducing balance method for calculating EMI or equated monthly installments: the EMI on a loan is calculated in this method using the following formula:

(P x I) x ((1+r)n) / (t x ((1+r)n)-1)


P=Principal amount borrowed

I=Annual interest rate

r=Periodic monthly interest rate

n=Total number of monthly payments

t=Number of months in a year

How Do Debit Card & Credit Card EMIs Work?

In this section, we will be discussing how debit card EMI works and how credit card EMI works. 

Credit card and debit card EMI options are suitable for online purchases that are made by cardholders. This type of equated monthly installment makes online shopping easier. To avail of a credit card or debit card loan, you can follow these steps:

  • Visit the shopping app or website or online store of your choice.
  • Choose the product of your choice and go on to the payments page. 
  • Choose the option of your bank credit or debit card EMI on the payments page. 
  • Then choose the repayment tenure. Select from the repayment tenure options of 3 months, 6 months, 9 months, and 12 months.
  • You must authorize the payment transaction by filling in the details required about the credit card or debit card, for online purchase. 
  • To complete this purchase, authenticate yourself using an OTP sent to your registered mobile number or email ID. 

You can easily make use of a credit card or debit card equated monthly installment if your bank card provides this facility. You do not need any documentation or security to be deposited or even a down payment for this equated monthly installment on your credit card or debit card. The transaction is easy and with just one click you can easily convert the payment method into a debit card or credit card EMI. the repayment of this EMI is easy using your savings account or current account to which the card is linked.

Benefits Of EMI

Let us take a look at the benefits of equated monthly installments.

  • Opting for EMIs gives you the freedom to make big purchases.
  • It makes a lot of expensive items affordable since you can pay for them in parts.
  • Using EMI calculators, you can pre-plan your budgets.
  • The amount is repaid directly to the lender and no mediator is involved. 


1. Is opting for EMI good or bad?

Opting for EMIs is good or bad depending on how well you repay the amounts and if you only borrow the amounts that you are capable of repaying in time. 

2. What are the disadvantages of EMI?

A few disadvantages of EMIs include that they are offered on long-term debts, some financial institutions might also charge fees for offering EMI plans, no prepayment plans, and a prepayment fee. 

3. How is EMI deducted?

EMI is deducted from the bank account that is involved in the loan borrowing procedure.