EMI Demystified: How Does It Work & Why Should You Care?

Are you in a hurry to make a big purchase but can’t pay it all upfront? Do you want to spread the cost of a big-ticket item over a period of time? Whatever your reason may be, Equated Monthly installments (EMIs) can be a savior for you.

EMI is a payment option offered by banks and lending institutions to customers that allows them to pay off a loan or purchase in small monthly installments. In simple terms, it’s like taking a loan for the full amount, which you pay off in smaller chunks over a period of time, usually ranging from 3-5 years.

As customers, we often come across the term EMI while making major purchases like a house, car, or electronic gadgets. The concept of EMI may seem confusing at first, but once you understand how it works, you’ll see how convenient it can be.

So, let’s dive into the world of EMI and explore how it works, the different types of EMIs, and why you should care about it.

How does EMI work?

For instance, you want to buy a mobile phone that costs Rs 20,000, and you can’t pay the full amount upfront. Here is where EMI comes into the picture. Instead of paying the full amount, you can pay small monthly installments. Here’s how the process works:

  1. You apply for an EMI option with either the merchant or a bank. You can also opt for an EMI option on a credit card.
  2. The bank will check your credit score and repayment history to determine your eligibility and the loan amount.
  3. Once your application is approved, the entire amount of the purchase is credited to the merchant by the lending institution.
  4. You then pay back the loan amount in equated monthly installments that include an interest rate. 
  5. The tenure of the EMI can range from 3-60 months, depending on the bank and the amount. 

There are different types of EMIs that you can avail of. Let’s take a look at them.

Types of EMIs

  • Flat-rate EMI: In a flat-rate EMI, the interest charged is calculated on the full value of the purchase. Each instalment you pay consists of a principal amount and an equal percentage of the interest charged. The interest rate remains constant throughout the loan tenure.
  • Reducing balance EMI: In a reducing balance EMI, the interest is charged only on the outstanding amount of the loan each month. Each instalment you pay consists of a principal amount and a proportionate rate of interest, which decreases with every payment. This type of EMI is more beneficial as the interest charged reduces with each payment, resulting in less overall interest paid.
  • No-cost EMI: No-cost EMI is a type of EMI in which the interest rate charged is zero. However, there might be a processing fee charged, which varies based on the bank or lending institution. In a no-cost EMI, the interest is borne by the merchant, and the banks charge no interest on the loan. This means you pay the exact amount for the product without any additional charges as interest.

Now that you know how EMI works and the different types of EMIs let’s dive into why it’s essential that you care about it.

Why should you care about EMI?

  1. Convenience: With EMI, you don’t have to break the bank to make a major purchase. Instead, you can pay for it in small monthly installments over a period of time, making your finances more manageable.
  2. Flexibility: EMI gives you the flexibility to pay off a loan in a time frame that suits you. With a repayment tenure ranging from 3-60 months, you can choose a tenure that suits your financial situation.
  3. Builds your credit score: Opting for an EMI and paying it consistently and on time can improve your credit score. A good credit score can help you get a loan or credit card with better terms and lower interest rates in the future.

EMIs are available for various purchases, from home appliances to big-ticket items like cars, making them an excellent option for all kinds of buyers, regardless of their financial situation.

How to get a Bajaj Finance Card

If you’re looking to opt for an EMI option, Bajaj Finserv is a leading lending institution that offers various kinds of loans, including personal loans, home loans, and EMI cards.

Getting a Bajaj Finserv EMI card is easy. You can either apply for it online or head to a Bajaj Finserv partner store to get one.

  • Online Application: To apply for a Bajaj Finserv EMI card online, follow these simple steps:
    • Visit the Bajaj Finserv website and select the EMI card option.
    • Fill in the details, including your name, mobile number, email id, and PAN card number.
    • Once you submit your application, it undergoes verification, and upon approval, your Bajaj Finserv EMI card is sent to you.
  • In-store Application: To apply for a Bajaj Finserv EMI card in-store, follow these steps:
    • Visit a Bajaj Finserv partner store and select the products you want to purchase.
    • Once you’ve selected the product, choose the EMI option and provide the necessary documents, such as your PAN card, Aadhaar card, and bank details.
    • After the verification process, if you’re eligible, you’ll receive an instant EMI card, and the product is yours.


EMI can make your financial life easier by allowing you to pay for large purchases in smaller, manageable installments. Understanding how EMI works and the different types of EMIs can help you make informed decisions when opting for an EMI option.

With lending institutions like Bajaj Finserv offering easy and flexible EMI options, you can go ahead and make the purchase you’ve always dreamt of without breaking the bank. So, go ahead and avail of the benefits of EMIs today!

Also read: Periodontal Therapeutics Market To Be Driven By Increasing Incidences Of Periodontal Diseases Globally In The Forecast Period Of 2023-2031

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