The purpose of EMIs, also known as equated monthly instalments, is to reduce the burden of paying a lump sum at the user’s end while the lender financing the transaction earns an agreed-upon interest and a processing fee by disbursing the money on your behalf.

An EMI is what? How do you access it?

As was already said, EMIs are nothing more than smaller portions of the total price specified by the vendor for a good or service that are due in the future. Most large purchases are divided into manageable payments for the convenience of the customers using EMIs because a person cannot buy a product if the cost price exceeds their monthly income.

Large-ticket credit facilities like home loans, auto loans, loans against property, loans against gold deposits, loans against securities, etc. were initially intended to be accommodated by EMIs.

Why do individuals think about using EMIs?

Most transactions of even smaller sizes are now being converted into EMIs as a result of the widespread use of credit cards, the development of small-ticket personal loans, payday loans, vacation loans, instant personal loans, the enormous growth of the credit market, and peoples’ willingness to make purchases with borrowed money over the past couple of decades.

With the introduction of credit products like “buy now, pay later,” “credit cards for lower income groups,” “short-term loans,” and “credit offerings from e-tailers,” people now find it incredibly easy to buy more expensive items by breaking down the cost price into smaller denominations and agreeing to the interest rates and processing fees imposed by the lenders.

Interest rate on EMIs

The client profile and the lender’s discretion solely determine the relevant rate of interest on EMIs. If you are buying tangible goods that are expected to lose value in the future (other than automobiles), you could be charged an interest rate that is payable on a personal loan of a similar amount.

Since you already have access to the credit limit granted to you by the bank when using a credit card, the majority of these EMIs are issued against that card. In some cases, debit cards also provide the option of EMIs.

Payback periods

Customers are able to service their debt payments in a variety of ways with the use of EMIs. The repayment period is much shorter for short-term personal loans, EMIs on credit cards, buy now, pay later services, and EMIs provided by new-age digital lenders than it is for EMIs provided for traditional credit products like home loans, car loans, loans against property, loans against securities, and personal loans.

The payback period for EMIs on these services often runs from 3 months to 36 months when taking into account online purchases made with the aid of credit and debit cards, cardless EMI facilities, credit wallets, small-ticket personal loans, payday loans, and buy now pay later.

Penalties and late fees

EMIs are only the lenders’ and financiers’ guaranteed receivables. Customers are recommended to pay their EMIs on time, but if they are unable to do so, in addition to the interest costs, late fines and penalties are also assessed. Penalty structures differ from lender to lender and depend on the features of the credit instrument. You should pay back the allotted EMIs on or before the due dates since late payment fees are also charged during government-ordered moratoria.