EMI – Easy Way to Manage Your Finance

March 15, 2011 - PRLog -- EMI as we all know is an acronym for Equated Monthly Installment. It is a common name used in the finance industry and is often associated with all types of loans. It is a good way to manage your debts and plan your budget. With the convenience of providing money to the borrower it offers an easy way of repaying the taken amount.

A required sum is paid by a bank or a financier to the borrower as home loan, car loan, or similar loans. The taken amount is paid back to the financier or lender in the form of monthly installments. The installments take into consideration the principal amount and the rate of interest on the same. The total is them divided to distribute the repayment into several easy installments that may continue from about 2 years to 20 years. The monthly payment is always paid on a fixed date as agreed during signing of the loan agreement.

Some of the factors that influence this monthly payments are rate of interest that keeps fluctuating from time to time, loan amount that varies according to the need of the borrower, and the loan tenure depending on agreed terms between the borrower and the lender. These factor rules the repayment policies, the interest added, and the sum of installments.

Now the question arises how the EMI is calculated? This basically depends on the factors and the loan tenure. There are basically two types of calculating loan amount, one is the flat rate system and another is reducing balance system.

The flat rate system is the one where the rate of interest is fixed and is calculated for the entire principal amount. Based on this calculation, the monthly repayment is calculated by dividing the sum of principal amount and interest in equal installments. The repayment sum remains the same every month throughout the tenure.

Then there is the reducing balance system that works by reducing the principal amount from the outstanding loan amount. In this case, the interest is charged purely on the outstanding balance that goes on reducing with every repaid installment.

Apart from flat rate system and reducing balance, there are other methods as well in case of other types of loans especially home loans. Home loan are often characterized by long tenure and hence many types and methods are linked to it. Some of the most common are step up, step down, balloon rate, fixed rate, and floating rate of interest. All these are attributed and customized depending on the financial status and requirements of the borrower keeping in mind the terms of the lender as well. Anyone can adopt for an easy and convenient method and manage debts and finance easily without any burden.

For more convenience there are different modes of payment as well with regards to the need of borrower. The repayments can be done in starting of the month, the end of the month, or payment through electronic clearing service. Any mode can be chosen as per the requirement.

Hasn’t the facility of EMI made managing of finance easier than before? Now people can stress free make purchases and fulfill their needs of comfort and luxury with ease.

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Tamanna is a passionate writer who is more fond of writing on spiritual and motivational subjects. Rest she writes on a variety of topics and subjects.

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http://www.emicalculator.co.in