A loan is a specific amount of money borrowed from banks or other financial institutions to fulfil various sudden and planned financial objectives. Loans are a form of debt incurred by borrowers, which involves future repayment within a stipulated duration. Repayments are inclusive of the principal amount and interest. Loans can be of secured, unsecured, personal, and commercial varieties.
Lenders loan amounts as either one-time payments or as open-ended lines of credit, extending till a certain limit. They consider a borrower’s credit score, earnings, and debt levels before granting them a loan. In addition, lenders can apply higher interest rates to borrowers deemed risky.
What is EMI?
EMI, or equated monthly instalments, is a fixed monthly repayment amount crucial for systematically clearing a loan over its defined period. Several factors shape EMI payments:
- Principal borrowed:Represents the total loan amount.
- Loan interest rate:Directly influences EMI, reflecting the cost of borrowing.
- Tenure:The loan duration impacts EMI, with longer tenures leading to lower monthly payments but higher overall interest costs.
