Advantages and Disadvantages of EMI
An EMI is an acronym for Equated Monthly Installment, which is a monetary word used in loan repayments.
It's an easy and simple way to pay off any form of debt. When a borrower takes out a loan from the bank or a non-bank financial institution, the loan is typically repaid in monthly installments.EMIs are the abbreviation for these fixed financial installments.
The EMI amount is determined by the principal loan amount, the loan term, and the rate of interest. This monthly installment, often known as an EMI, is due to be paid to the bank on a set date, either by check or online.
Benefits of EMI
- Freedom to Purchase Expensive Products: EMI allows buyers to buy expensive utilities that they would not otherwise be able to afford. EMI can help you buy anything and everything, including expensive household products, a vehicle, weddings gifts and jewellery, and even a home. Clients make purchases and reap the benefits since they can divide the cost into monthly installments and pay it off effortlessly. This benefits not only the customers but also the dealers and sellers of such pricey commodities. For the average person, EMIs are akin to a wishbone.
- Easy on the wallet: The EMI programme allows the borrower to pay the loan in monthly instalments. The amount is calculated using the principal loan amount, the loan duration, the interest rate, and the borrower's ability to repay. This makes things simpler for debtors to pay off the debt in tiny monthly instalments. As a result, they don't have to cut back on their monthly spending to cover the cost of numerous high-priced services.
- Bank's Flexible EMI Alternatives: Many banks now provide borrowers with flexible EMI options. The EMIs are modified and determined in accordance with the borrower's requirements. The borrower chooses the instalment and term that are most convenient for him or her.
Drawbacks Of EMI
- Longer Debts: Borrowers must pay monthly instalments or EMIs until the principal amount and relevant rate of interest are paid off. These tenures might be as long as 20 to 30 years in the case of home loans or personal loans. That implies a borrower will return the loan payments for approximately half of his or her life. This prevents the borrower from purchasing any additional high-end utilities in the coming years.
- No Early Repayment: If a borrower intends to pay off a loan sooner than expected with extra money or a bonus, banks do not provide an easy way to do so. Many banks and non-bank financial institutions (NBFCs) apply early payback costs to such borrowers. Even if the borrowers could, this makes it difficult for them to pay off the debt sooner.
- Charges For Missed EMI: Banks and NBFCs apply late fees to borrowers who forget or fail to pay their EMIs on or before the due date. When it comes to EMI repayment, banks and NBFCs have tight requirements. If a borrower misses repeated EMIs, the bank may pursue legal action against them, or their collateral may be snatched away.
- Extra Costs: The lender must pay a small amount in addition to the original loan amount in the form of interest. The lender cannot avoid paying this additional amount because the outstanding balance and interest rates are combined to generate an EMI.
Final Words:
As everything has its pros and cons, its your decision now whether to opt for Equated Monthly Installments scheme. In today’s world, you will find the option of EMI in almost all kinds of products, items and services. Be it a home loan, or you wish to purchase an electronic item, EMI options are available in plenty.