The percentage of interest versus principal in each payment is determined in an amortization schedule. The benefit of an EMI for borrowers is that they know precisely how much money they will need to pay toward their loan each month, making the personal budgeting process easier.Īn amortization schedule is a table detailing each periodic payment on an amortizing loan (typically a mortgage),Īs generated by an amortization calculator.Īmortization refers to the process of paying off a debt (often from a loan or mortgage) over time through regular payments.Ī portion of each payment is for interest while the remaining amount is applied towards the principal balance. In EMI plans, borrowers are usually only allowed one fixed payment amount each month. It further explains that, with most common types of loans, such as real estate mortgages, the borrower makes fixed periodic payments to the lender over the course of several years with the goal of retiring the loan.ĮMIs differ from variable payment plans, in which the borrower is able to pay higher payment amounts at his or her discretion. According to WikiPedia an Equated Monthly Installment (EMI) is defined as "A fixed payment amount made by a borrower to a lender at a specified date each calendar month.Įquated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is paid off in full."
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