EMI is an acronym for Equated Monthly Installment. It is the amount payable every month to the bank or any other lender until the loan amount is fully paid off. It consists of the interest on the outstanding balance as well part of the principal amount to be repaid. The sum of principal amount and interest is divided by the tenure, i.e., number of months, in which the loan has to be repaid. The interest component of the EMI would be larger in the initial months and gradually reduce when compared to the principal amount. This is because interest is charged only on the balance outstanding. This is known as reducing balance method. Although the monthly payment amount remains the same throughout the loan tenure, with each successive payment you’ll pay more toward the principal and less in interest.