An Equated Monthly Installment (EMI) is a fixed monthly payment you make to a bank or financial institution to repay your loan. It’s a combination of two key components: the interest charged on your loan and a portion of the principal amount. The total loan amount, along with the interest, is divided into equal payments over the loan tenure, typically measured in months.

Each monthly EMI payment ensures that your loan is gradually repaid over time. In the initial months, a larger portion of the EMI goes toward paying the interest, while a smaller portion is applied to the principal amount. As the loan progresses, the interest portion decreases, and the principal portion increases. This shift occurs because the interest is calculated on the outstanding loan balance, which reduces with each payment.