What is Equated Monthly Installment Payment?
27 May, 2024
Synopsis
EMI stands for Equated Monthly Instalment
It is a fixed payment a borrower makes to a lender on a fixed date each month
Each EMI comprises a portion of the principal loan amount and the interest component
In this age of digitalisation, acquiring a loan has become incredibly easy as lenders inform you about their offerings online through their websites. In several cases, lenders also accept loan applications online, after which they disburse the loan amount within a few days. Once your loan is sanctioned, you must start repaying it by paying Equated Monthly Instalments or EMIs. But what is EMI payment? In this article wedecode the meaning of EMI payment and help you understand how you can manage your EMIs more efficiently via PayZapp from HDFC Bank.
What is Equated Monthly Instalment?
An Equated Monthly Instalment, usually referred to as EMI, entails the amount that a borrower needs to pay to a lender to return the loan funded by the lender. The borrower must repay the EMIs on a fixed or predetermined date each month. The EMI amount is also typically fixed in case of fixed interest loans. However, it may vary slightly if a borrower opts for a floating interest loan.
When you take out a loan, your lender levies interest on the principal amount loaned. You must repay both, the principal amount as well as the applicable interest amount. Each EMI comprises a portion of the principal amount and the interest component and you need to keep paying the EMIs until you have repaid both, the principal amount loaned and the applicable interest amount, in full.
How is EMI Calculated – Understanding the Formula
Having explained the meaning of EMI payment, let’s now understand how lenders determine the EMI amount you need to pay against your loan.
Lenders use a simple mathematical formula to compute EMIs. It comprises the main elements or components of the loan, i.e., the amount borrowed, the applicable interest rate, and the repayment tenure. The formula is as under:
EMI = P × r × (1 + r)n/((1 + r)n – 1)
In the above formula:
P = the principal loan amount
R = the monthly interest rate
N = the total number of monthly instalments
Now, let’s break down the above EMI calculation formula with the help of an example.
Let’s assume that you took out a two-wheeler loan to purchase a sports bike. The lender sanctions a loan amount of ₹200,000 and levies a fixed interest rate of 12%. You decide to repay the loan within 2 years, which makes your repayment tenure 12 months x 2 years = 24 months (i.e., 24 EMIs).
In this case, your monthly EMI will be computed as follows:
((2,00,000 x 12% x 2) + 2,00,000)) / (2 x 12)
Based on the above calculation, you will need to pay an EMI of ₹10,333 for 24 months (2 years) to become completely debt-free.
Important Facts to know about EMIs
Let us now look at some crucial facts you should know about EMIs:
Each EMI comprises both – a portion of the principal amount and the applicable interest rate.
Choosing a longer loan repayment tenure translates to lower EMIs but may result in a higher interest rate.
Conversely, opting for a shorter loan tenure can result in higher EMI amount but a lower interest rate.
In the early stages of the loan, a significant portion of the EMI goes towards interest payment.
As time goes by, the interest component reduces while the principal repayment component increases.
If you miss repaying your EMIs, your lender may charge a late payment penalty, which may temporarily increase your EMIs, until you repay the outstanding dues per the loan schedule.
Repaying loan EMIs Easily – The PayZapp Connect
HDFC Bank’s PayZapp is an online payments solution that allows you to seamlessly manage your payments and monthly financial obligations, including loan EMI repayment. Whether you are an HDFC Bank customer or not; whether you have taken a loan from HDFC Bank or another lender, you can pay your EMIs on PayZapp by following these steps:
Download PayZapp Online Payment App on your smartphone, register on it by linking your bank cards, and log in to your PayZapp account.
Tap on ‘Bills and Recharges’ on the home page to see the menu of payment services, go to ‘Financial Services’ and click on ‘Loan’.
Choose your lender’s name from the drop-down menu, enter your loan account number and/or registered mobile number.
PayZapp will retrieve your loan details, including the EMI amount. Click on ‘Continue’ to proceed with the EMI payment.
Choose your preferred payment method from the options available on PayZapp to complete the EMI payment process.
Click here to make upi payment through PayZapp on your IOS phone.
Click here to download PayZapp UPI Payment App on your Android phone.
Simplifying EMI Repayments With PayZapp
HDFC Bank’s PayZapp is a unique online payment solution through which you can easily pay your various bills and EMIs. Once you pay the EMI, PayZapp stores your payment details in its ‘Passbook’ section. If you need to locate a past EMI payment, you can find it easily by using filters within ‘Passbook’. Moreover, both PayZapp and your lender shall notify you upon receiving the EMI payment.
Pay your loan EMIs on time. Download PayZapp today!
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
