Equated Monthly Installment - EMI

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DEFINITION of 'Equated Monthly Installment - EMI'

A fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated 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.

BREAKING DOWN 'Equated Monthly Installment - EMI'

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. EMIs differ from variable payment plans, in which the borrower is able to pay higher payment amounts at his or her discretion. In EMI plans, borrowers are usually only allowed one fixed payment amount each month.

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.

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