The Buyt Desk
Equated Monthly Instalment (EMI) is a facility that a borrower provides to a creditor. It is a fixed monthly payment that the creditor has to pay every month. It applies to both principal and interest amounts. As the EML completes, the loan gets over.
From a mobile phone, smart TV and appliances to an apartment, car, etc., you can buy everything on EMI. The facility aid in paying loan amount in parts instead of a single lump sum.
Despite offering glaring benefits and being advocated by financial institutions, still many people do not know about EMIs. This article is a comprehensive guide to understanding everything about EMI and its good and bad aspects.
How Does The EMI Work?
You understood what EMI is. Now, check how it works.
It is a kind of payment arrangement between the borrower and lender. In the EMI arrangement, borrowers make one set of payments every month. It is predecided, so borrowers know how much they have to pay. It makes their financial planning easier. The lender, on the other hand, gets a consistent repayment with interest.
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Financial institutions calculate EMI in two ways.
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The flat rate method.
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The reducing balance method.
The Advantages and Disadvantages Of EMI
Gives Freedom To Purchase – EMI helps in buying expensive items right away. For salaried people buying their dream car or home is not easy, but with the EMI option on loan, they can break down their expenses.
It Makes Expensive Things Affordable – Weather it is an expensive watch, mobile phone, home appliance or anything. EMI makes it affordable. When there is no need to pay in a lump sum, it makes that stuff less expensive. The lender divides the amount into equal monthly instalments and lets you pay in smaller chunks.
Makes Financial Planning Easy – Since you know how much you have to pay every month, EMI does not trouble your pocket. You can invest the rest of your money and earn interest.
Plan Your Payment With EMI Calculator – You can use the EMI calculator to plan your payment. It is an easy way to know how much you will be paying every month and for what period. You can take the help of the EMI calculator to check these details.
No Processing Time – The lender directly processes the EMI. No paperwork or approval from multiple parties is required.
The Disadvantages Of EMI
EMI has many advantages, but it has a set of disadvantages as well if borrowers do not use the service wisely.
Long Debts – You remain in debt till your EMI is not over.
Higher Repayments – EMI comprises the principal amount and interest. E.g. If you want to buy a smartwatch worth Rs 50,000, you will be paying 2-3% extra as interest.
Penalty On Skipping EMI – Missing EMI causes negative implications. In case of missed payment, your lender might levy a penalty on you or might also take over the mortgaged asset if missed regularly.
