EMI (Equated Monthly Installment), as the name suggests, is basically installments equally divided in months which are to be paid for the product purchased or service used within a stipulated time frame. It is the easiest way to lower one's burden of loan every month.
EMI is calculated using the formula:
P x R x (1+R)^N] / [(1+R)^N-1]
= Principal or your loan amount
R = Rate of interest
N = Tenure (loan term in a number of years)
Your EMI includes two main components – principal and interest. In the early part of your tenure, the interest amount is higher and that becomes progressively lower. Towards the end of the tenure, the principal amount forms a large proportion of the EMI.
Definitely NOT! It’s a very convenient way of buying things, but the problem is that the EMI way of buying, gives a lot of people the feeling that they can afford anything which comes in their way. And there lies the problem! A sizable chunk of people believe, that they need a bigger bone (well they actually don’t) and the easy availability of everything, in EMIs plays a large role in said belief.
As now affording things have become very easy due to EMI but at times it happens that we lose our control on our spending. We extend our affordability horizon to such a great lengths, that we have everything in our life but most of it is under debt.
If you skip your EMIs payment, say due to insufficient balance or any other reason, assuming EMIs remaining the same, the tenure of the loan would increase.
Remember, skipping EMIs does not reflect well on your creditworthiness and could impact your credit score. Hence, make sure you borrow wisely, within your means, in the interest of your financial wellbeing.
When one partially prepays the loan during the loan tenure and decide not to change your future EMIs, then the original loan tenure would reduce. However, if you decide to reduce your future EMIs since you partially prepay, your loan tenure remains unchanged.
As you all know that EMIs get deducted from our account on a fixed date. Many banks every month sends reminder to the customer that on this particular date the EMI will be deducted from their account.
NACH mandate makes repayment of our EMIs automatic from our bank accounts. NACH mandate is basically giving authorization to an institution to credit and debit funds. However, for security purposes, a set of post-dated EMI cheques are required.