EMI is the amount a loan taker pays every month to repay the overall loan. This amount can typically be broken down into two components
- Principal repayment :
The part of the EMI which is used towards paying back the principal loan amount. This reduces the Principal outstanding - which is the unpaid part of the loan. The interest is calculated on the Principal Outstanding and as this amount comes down, the interest component in the EMI also starts falling.
See the month wise calculations here
- Interest payment :
Interest payment is the interest component of the EMI and is typically charged based on the Principal outstanding.
Looking at the above, it is clear that
EMI=Interest payment + Principal repayment
As the loan tenure matures, the Principal repayment component increases and the Interest component falls. But the two go in tandem so that the loan takers monthly cash outflow remains the same.