In India, where the price of goods and services like electronics, furniture, home appliances, and personal loans will be higher due to the higher salary per month, Equated Monthly Installments (EMI) have been a blessing for the majority of consumers. EMIs are a hassle-free mode of buying high-value items by dividing the price into easy monthly installments over a specified duration of time.

Data regarding the use of an EMI facility is extremely vital in successful financial management. All the stages of the EMI process are explained below so that new entrants can make informed decisions.

What Is Availing EMI?

An EMI is a purchase decision of going for a product or service by financing the same by paying convenient monthly installments rather than paying the lump sum amount in full. It facilitates purchases of expensive products easily as the culture of EMI divides the payment into convenient pieces.

EMI can be opted for easily:

• Durables, including televisions, refrigerators, air conditioning units, and clothes washing machines.
• Electronics that consist of cell phones, laptops, and cameras.
• Large furniture that consists of sofas, beds, and dining room tables.
• Personal loans for medical bills in emergencies, weddings, education, and travel.
• House loans for buying a property

The instant you take an EMI, the vendor is settled by the bank or NBFC, and you repay the bank or NBFC in fixed monthly payments within the period specified.

Choosing the Product or Service

The first thing to do in order to avail an EMI facility is to choose the product or service for which you want to avail an EMI. This may be from an e-store like Amazon India, Flipkart, or Croma, or even a retail outlet like Reliance Digital, Vijay Sales, or local electronic shops.

For instance, if you are required to pay ₹30,000 for a smartphone, you can pay the full amount all at once or opt for the EMI facility. The sellers of the majority of the offline stores and online stores comprehensively outline the EMI facility once you make the payment, and hence it is very easy to avail the EMI facility.

Selecting the EMI Tenor

Once you choose the product, you can select the EMI term according to your budget. Tenure means how many installments you will repay the loan in.

Typical tenure terms available in India are:

• Short tenors: 3, 6, or 9 months
• Medium tenure: 12 or 18 months
• Long tenure: 24 or 36 months

A lesser tenure is costlier every month but lower interest in total, and a higher tenure is cheaper for every month but higher interest in total over the duration of the loan.

To illustrate this, paying ₹30,000 for a phone as EMI for 6 months would come to ₹5,200 per month, but an EMI of 12 months would bring down the monthly payment to ₹2,700.

Select the right tenure to optimize the cost and total interest. Wherever possible, select the lowest tenure that aligns with your monthly expenses to reduce the unnecessary cost of interest.

Documents Submission

For granting an EMI facility, your lender (bank or NBFC, for instance) would like to verify your identity, income, and address to determine your eligibility.

Typically required documents are:

• Proof of Identity: Aadhaar card, PAN card, Passport, or Voter ID
• Proof of Address: Rent Agreement, Utility bills, Passport, or Aadhaar card
• Proof of Income:
• For salaried class: Form 16, bank statements of salary deposits, and recent salary slips (preferably the last 3 months)
• For self-employed professionals: Bank statements of business transactions, business registration certificate, and recent Income Tax Returns (ITR) of 2–3 years

For online payments, digital KYC has been adopted by the majority of websites. Paper documents need not be given, but can be identified using Aadhaar-based OTP or account linking. This decreases paperwork and speeds up the approval process.

For example, while shopping from Flipkart or Amazon, you would be prompted to enter your Aadhaar number and bank account number to get instantly verified.

Lender Credit Rating

Once the documents are submitted, the lender conducts a credit check. This is done to verify whether you are creditworthy or not, so that they know if you will be paying EMI on time or not.

The most important information taken into consideration by the lender is:

• Your credit rating (likely the CIBIL rating for India): Above 750 is good creditworthiness and positions you well to be approved for the EMI at low rates.
• High EMIs or loans and overdue debts: New EMIs are generally disapproved by banks if your current debt-income ratio is colossal.
• Income/salary stability: Salaried persons with regular salary credits from banks are approved more easily.
• Work history: A longer and consistent work history has a better opportunity of being sanctioned. Lower.

After your profile gets approved by the lender, your EMI application gets sanctioned. For small transactions like electronics, sanction is immediate. However, for larger loans such as home or personal loans, approval may take a few business days. For example, Rajesh, a salaried customer with a CIBIL score of 780, received his sanction after verification. He takes an EMI to buy a ₹50,000 refrigerator. The bank checks his documents online and approves the EMI within seconds, and he is able to buy the product.

Loan Sanction and Disbursement

After a successful credit check, the lender sanctions the EMI facility. This is, in effect, checking of EMI term, rate of interest, and EMI amount on a regular monthly basis. The sanctioned amount of the loan is the cost of the product or the loan amount given.

The lender pays the vendor at the time of purchasing the product. The vendor is not paid by the buyer but pays money to the lender periodically.

Example

Priya buys an air conditioner for ₹40,000 on 12 months’ EMI. The financier advances ₹40,000 to the seller, and Priya makes the same fixed amount of EMI, i.e., ₹3,600 monthly for 12 months.

The financier calculates the rate of interest as well as the type of EMI plan (normal or zero-cost EMI) chosen.

EMI Calculation Explained

EMI may be computed based on interest rate, tenure, and loan amount. Banks and NBFCs use a formula that makes use of amortization, where every EMI consists of principal as well as interest.

Though theoretically there exists a formula, practically, banks and online EMI calculators approximate it. The online calculators require:

• Loan Amount (e.g., ₹30,000)
• Interest Rate (e.g., 12% per annum)
• Tenure (e.g., 12 months)

Based on this data, the system will display the monthly EMI amount and interest for the duration.

For example,

A consumer can opt for an EMI scheme of ₹30,000 with a 12% per annum interest rate for 12 months and pay around ₹2,666 per month.

Repayment Process

After the initiation of the EMI scheme, the monthly payment begins from the very next purchase month.

Customers have a variety of EMI payment options, including:

• Auto-debit from Bank Account: The most convenient, as your EMI gets auto-debited from your account every month.
• Post-Dated Cheques (PDC): Some offline financiers request post-dated cheques for the entire EMI period while availing of the EMI.
• Online Payment: EMI can generally be paid online using net banking, UPI, or mobile banking applications.
• Credit Card EMI Conversion: Bank customer care or website may convert some credit card payments to EMI.

For instance:

Suman purchases a washing machine worth ₹40,000 and takes advantage of a 24-month EMI facility. The financier deducts ₹1,900 automatically every month from her savings account.

You have to pay EMIs on time so that penalty, late fee, or your credit report damage is not suffered.

EMI learning of amortization

A significant aspect of EMI is the reduction of the amount of loan due over time through the process of amortization. An EMI consists of:

• A part to repay the interest accumulated by the lender.
• A part for repayment of the loan taken amount of principal.

During the first few months, the majority of the EMI is paid towards the interest component since the outstanding amount of the principal is quite high. With the repayment continuing, the principal goes down, and hence the interest component goes down too. The percentage of the EMI that is paid towards the repayment of the principal increases.

Example:

During the tenth month of a ₹30,000 loan:

• ₹500 is being paid towards interest
• ₹2,160 is being paid towards principal

By the last month

• The interest portion will be ₹100 only.
• Principal portion can be ₹2,560

This regular amortization ensures the loan is completely repayable at the end of the term.

Prepayment and Foreclosure of EMI Loans

There could be some cases where you might wish to pay your EMI loan ahead of the prescribed tenure duration. This is feasible by:

• Prepayment: Payment of a part of the outstanding loan amount.
• Foreclosure: Payment of all outstanding loan amounts.

A prepayment charge is charged by all lenders (1%-3% of the outstanding amount). Be very careful to look out for such conditions while taking an EMI, especially if you plan to prepay in the future.

Example:

Neha bought furniture costing ₹60,000 on a 24-month EMI. On a windfall bonus, she prepaid in the 12th month by paying the outstanding amount along with a nominal foreclosure fee.

Prepayment saves future interest but needs to be made carefully to prevent penalty charges.

How EMI Repayment Affects Your Credit Score

On-time payment of EMI helps your credit report. In India, your CIBIL score (or similar credit bureau scores) indicates your payment history, i.e., EMI repayment.

Timely payments enhance your credit report.

Default or delay damages your credit score and makes the next loan to avail more difficult.

Example:

A consumer with a 780 CIBIL rating and an untainted history of EMI payments will be eligible for reasonable interest rates for future loans than a consumer with less than a 650 rating and outstanding dues of EMIs.

Real-Life Example Describing the EMI Availing Process

Take the example of Ramesh availing an EMI for purchasing a laptop.

1. Product Choice: Ramesh buys a ₹55,000 laptop from an online shop as part of a festival sale.
2. Choice of the Tenor of EMI: On the same day, he selects a 12-month product of his bank of EMI type with an interest rate of 13% per annum.
3. Document Submissions: Ramesh submits Aadhaar card, PAN card, and 3 months’ salary slips online.
4. Credit Analysis: The bank checks Ramesh’s CIBIL score (765) and income stability immediately.
5. Sanctioning and Disbursement: The bank sanctions the loan and disburses ₹55,000 to the seller.
6. EMI Calculation: His bank determines his EMI is ₹5,050/month.
7. Repayment: ₹5,050 is deducted automatically from Ramesh’s account monthly.
8. Amortization: At first, the EMI repays mostly interest; subsequently, the principal portion increases.
9. Prepayment Option: Ramesh prepays the 6-month due amount for a prepayment penalty of 2%.
10. Credit Impact: Prepayment enhances his credit record for any future loans.

Conclusion

EMI repayment in India is an orderly process to enable one to buy high-cost goods and services at a low cost. It is a very easy process with the following steps:

• Selection of a product or service
• Selection of the EMI term
• Submission of documents required
• Passing credit tests
• Granting and disbursing loans
• Initiating monthly installments
• Settling amortization
• Using pre-payment options wherever required
• Total payment for a good credit score

Each and every one of these steps, explained clearly, prevents clients from making common mistakes such as over-borrowing or late bill payments. By making judicious decisions—properly choosing cost-zero EMI deals and shorter tenors—you can turn EMI into a hassle-free money instrument rather than a cause of concern.

This is the knowledge that makes EMIs a hassle-free, flexible method of sensible finance planning.