EMI Explained :The EMIs have become an indispensable part of financial planning. It helps individuals make purchases or avail loans without worrying about the burden of an upfront payment for the amount. It benefits the buyers by offering them manageable monthly payments, and it benefits the lenders by earning interest and processing fees during the loan tenure.
What is an EMI?
An EMI is the fixed monthly payment toward repaying a loan or financing a purchase. It helps break up a large amount into smaller, more affordable chunks, which are easier for an individual to manage within his or her monthly budget.
Read More: Top 5 Must-Know Government Business Loan Schemes in India for 2025
For example, a person may desire to buy an item or service whose price exceeds his monthly salary, for which EMIs allow spreading the cost over a defined period. Traditionally, EMIs were employed with large loans like home loans, car loans, and loans against property. With the passage of time, however, they have gained importance and are now employed for small-ticket loans and credit purchases also, thus making it easier to reach a greater section of people.
Why Are EMIs Popular?
EMIs have grown in popularity for several reasons:
- Affordability: They make expensive purchases manageable by breaking the total cost into smaller amounts.
- Ease of Access: With the increasing popularity of credit cards, buy now, pay later (BNPL) options, and digital lending platforms, EMIs are now available for everything from gadgets to vacations.
- Convenience: Consumers can maintain their budgets without compromising on their desired purchases.
For sellers, easy or no-cost EMIs boost sales, and lenders earn interest on the financed amount. It is a win-win for all parties.
Rate of Interest on EMIs
The interest rate on EMIs depends on various factors:
- Customer Profile: Your credit score, income, and repayment history matter a lot.
- Type of Loan:
- For secured loans such as home or car loans, interest rates are relatively lower.
- For personal or consumer loans, interest rates may be higher as there is more risk involved.
- Loan Source: EMI offered through credit cards, debit cards, or BNPL platforms may carry different interest rates.
Now that fintech has advanced, cardless EMIs have emerged, targeting the youth who do not have a credit card. However, it charges with higher interest rates because they are not secured.
Repayment Tenure
EMIs provide flexibility in repayment terms based on the type of loan:
- Short-term EMIs: For small personal loans, BNPL options, or cardless EMIs, repayment terms typically range from 3 to 36 months.
- Premium Credit Cards: Some banks offer extended tenures of up to 48 months for select customers.
- Secured Loans: Home loans, car loans, and loans against property can have repayment periods of up to 25 years.
This flexibility ensures that borrowers can choose a tenure that aligns with their financial capacity and repayment goals.
Late Fees and Penalties
Though EMIs make it easy to pay, skipping a payment attracts extra charges:
- Late Fees: This varies from lender to lender and type of loan.
- Impact on Credit Score: Late payments can have an adverse effect on your creditworthiness.
- Moratorium Periods: Even during the government-imposed moratorium, lenders charge penalties for late payments.
Borrowers must prioritize timely payments to avoid extra charges and maintain their financial health.
The Rise of EMI Culture
Credit products in the form of BNPL, cardless EMIs, and short-term loans have increased manifold in the recent past. All major fintech companies, as well as digital lenders, and traditional banks are jumping into this market with various innovative solutions.
These developments have made EMIs accessible to a broader audience, including individuals without credit cards or established credit histories. However, with this convenience comes responsibility. Borrowers must carefully evaluate interest rates, repayment tenures, and terms to avoid financial strain.
Final Thoughts / EMI Explained
Manifold increases in credit products – in the form of BNPL, cardless EMIs, and short term loans have happened in recent past. All major fin-tech companies, digital lenders as well as traditional banks jumping into this market with unique solutions.
Read More: Dark Side of Hollywood Film Industry 2025: Shocking Secrets You Never Knew About the Film Industry!
These developments have made EMIs accessible to a broader audience, including individuals without credit cards or established credit histories. However, with this convenience comes responsibility. Borrowers must carefully evaluate interest rates, repayment tenures, and terms to avoid financial strain.
Braj Verma is a resident of Rajgarh in Madhya Pradesh and is a content writer and freelancer by profession. He has a degree in Political Science from Barkatullah University, Bhopal. He has expertise in subjects like credit cards, banking, loan, insurance, political analysis and digital marketing.