Equated Monthly Installments (EMIs)

An equated monthly installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Such 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. The borrower makes fixed periodic payments to the lender over the course of several years with the goal of retiring the loan in schemes such as student loans, real estate mortgages, etc.

Following are some of the advantages and disadvantages of the EMI scheme:

Advantages of EMI:

  • It gives consumers the freedom to buy expensive utilities: It is easier for consumers to buy expensive articles owing to the payment schemes being done in installments by various banks. The installment tenure is decided by the borrower.
  • Easy on Wallets: Payments for commodities becomes easier and is not very expensive as a lump sum amount need not be paid at once. Hence, we can say that smaller installments make it a cheaper option in comparison with a mammoth amount being paid at once.
  • Flexible EMI Options by Banks: Nowadays, banks offer various different and consumer-friendly schemes and are majorly planned in their favor.

Disadvantages of EMI:

  • Longer Debts: The borrowers have to pay the fixed principal amount along with interest every month. Although this amount does not change, it takes a long time until the entire loan is paid for. This can go on for a decade in case of luxurious goods, which would eventually bar the borrower from further purchasing luxury items.
  • No Early Repayment: If a borrower wishes to pay the loan faster in case he has more funds, unfortunately, there is no facility provided in such cases. On the contrary, he would be charged extra interest in such a situation.
  • Charges on Skipping EMIs: Banks, as well as Non-Banking Financial Companies (NFBC’s), have very strict norms when it comes to payment of EMI’s when due. Even in case of emergencies, banks and NFBC’s charge interest in case of untimely payment of EMI.
  • Extra Costs: The borrower has to pay an extra amount in addition to the amount borrowed in the form of interest.

EMIs differ from variable payment plans, in which the borrower is able to pay higher payment amounts at his or her discretion. Such a plan requires the borrower to pay a fixed amount of the principal sum along with a fixed rate of interest every month.

No Cost EMI:

No Cost EMI is an offer by which a borrower is expected to pay only the principal sum of the money borrowed, without interest being charged. For example, some property is bought for Rs.600,000, and a loan is applied for the same. In this situation, if an EMI method of payment is chosen by the borrower, he will have to pay a fixed sum of money on a monthly basis. (in this case, Rs. 50,000 per month).

In 2013, the Reserve Bank of India (RBI) banned this scheme on retail products. So banks try to come up with a variant of the option. No cost EMI sounds like you don’t have to pay any interest on the loan, but in reality, you do. Hence we can say that such a scheme is actually a myth and is often used as a marketing strategy by banks and private companies. “RBI rules don’t allow interest-free loans. Vendors or companies either give an upfront discount or offer cashback equivalent to the interest amount." 

Safety of No Cost EMI:

A No Cost EMI is generally offered by private companies giving discounts to consumers. This makes consumers satisfied and gives them a feeling of relief. But, the reality of this is grim. This often happens with luxury goods, the time people opt for EMI schemes.

When such fraudulent cases take place, consumers are eventually cheated for money and in their own greed about discounts being offered, end up buying expensive goods that may not be needed by them, pay interest on the loans taken, and finally left helpless.

For safe usage of an EMI the following precautions must be taken:

  • People must be aware of the prepayment and postponed payment of loans.
  • Borrowers must only invest in such schemes for necessary goods or requirements.
  • DO NOT fall prey to additional offers. These are pure marketing gimmicks.
  • Know the system and the study of EMI from a known source.
  • Checking ALL the charges levied before jumping to conclusions.


EMI schemes are not all that bad, but they definitely require an in-depth study from the borrower’s end. Such schemes are often used for long term loans such as housing, which may require a consistent fee payment for years at length or even short term purchases like mobile phones or other appliances. Hence, such a system must be chosen with appropriate planning and commitment to payment of a fixed amount every month on a particular date.

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