EMI & Loan Glossary
Short definitions of the terms you will meet when you borrow in India.
EMI (Equated Monthly Instalment)
The fixed amount you pay your lender each month, covering both interest and part of the principal.
Principal
The amount you borrow, before interest.
Tenure
The length of the loan, in months or years.
Reducing-balance rate
An interest method where interest is charged only on the outstanding balance, so it falls as you repay.
Flat rate
An interest method that charges interest on the full original loan amount for the whole tenure. It is much costlier in real terms than the same number on a reducing basis.
Floating rate
An interest rate linked to a benchmark such as the repo rate, so it changes over time.
Fixed rate
An interest rate that stays the same for a set period.
Repo rate
The rate at which the RBI lends short-term money to banks. Floating-rate loans linked to it move when it changes.
EBLR
External Benchmark Lending Rate: floating-rate loans to retail borrowers are linked to an external benchmark such as the repo rate.
Spread
The margin a lender adds on top of the benchmark rate to arrive at your lending rate.
Prepayment
Paying part of the loan before it is due, which cuts interest and tenure.
Foreclosure
Paying off the entire loan before the end of the tenure.
Processing fee
A one-time charge a lender takes for processing the loan, often 0.5–3% of the amount.
Moratorium
A period, usually during a course of study, when you do not pay EMIs although interest may accrue.
FOIR
Fixed Obligation to Income Ratio: the share of your income that goes to fixed monthly payments.
LTV (Loan-to-Value)
The loan amount as a percentage of the value of the asset being financed.
CIBIL score
A three-digit credit score from 300 to 900. A score of 750 or above usually gets better rates.
Credit utilisation
The share of your credit card limit that you use. Keeping it low helps your score.
Balance transfer
Moving an existing loan to another lender, usually to get a lower interest rate.
Top-up loan
An additional loan on an existing loan, often at a rate close to the original.
Amortisation schedule
A table showing how each EMI splits between interest and principal over the life of the loan.
APR (Annual Percentage Rate)
The yearly cost of a loan including fees, which allows a fair comparison between lenders.
Co-applicant
A second person who applies with you and shares responsibility for the loan, which can raise eligibility.
Collateral
An asset pledged to secure a loan, such as a house, car or gold.
Secured loan
A loan backed by collateral, usually with a lower rate than an unsecured loan.
Unsecured loan
A loan with no collateral, such as a personal loan, usually at a higher rate.