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EMI — Equated Monthly Instalment
A fixed monthly payment made to a lender that combines both principal repayment and interest on the outstanding loan balance.
EMI is calculated using the formula: EMI = P × r × (1+r)^n / ((1+r)^n − 1), where P is the principal, r is the monthly interest rate, and n is the number of months.
In the early months of a loan, most of the EMI is interest. As the principal reduces, more of each EMI goes toward principal. This is called amortisation. Making prepayments early in the loan tenure has maximum impact on reducing total interest paid.
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