EMI & loan glossary

The vocabulary of borrowing, defined simply — each term has its own page with context and, where numbers help, a worked example. 20 terms.

• Amortization Amortization is the process of paying off a loan through regular instalments, where each payment covers that month's interest first and reduces the principal with the rest.
• APR vs Flat Rate A flat rate charges interest on the full original amount for the whole tenure; the true reducing-balance cost (APR) is much higher. A flat rate always looks smaller than the equivalent reducing-balance rate.
• Balance Transfer A balance transfer moves your outstanding loan to a new lender offering a lower rate. It can cut your EMI or total interest, but weigh the processing/legal costs and how much tenure is left.
• CIBIL / Credit Score A credit score (such as the one from CIBIL) summarises your repayment history on a 300–900 scale. A higher score typically earns a lower interest rate and easier approval.
• Down Payment The down payment is the share of a purchase you pay upfront from your own funds; the loan covers the rest. A bigger down payment lowers the loan, the EMI and the total interest.
• EMI Moratorium An EMI moratorium is an agreed pause on repayments for a set period. Interest usually keeps accruing during the break and is added to your balance, so the loan costs more overall.
• Fixed vs Floating Interest Rate A fixed rate stays the same for the tenure (or an agreed period), so the EMI never changes; a floating rate tracks a benchmark such as the repo rate and can move up or down over the life of the loan.
• FOIR (Fixed-Obligation-to-Income Ratio) FOIR is the share of your net monthly income already committed to EMIs and other fixed obligations. Lenders cap it — often around 50–60% — to decide how much more you can safely borrow.
• Foreclosure Foreclosure is closing a loan in full before its tenure ends by paying the entire outstanding balance. It saves all the remaining interest; fixed-rate loans may charge a foreclosure fee.
• Hypothecation Hypothecation is the charge a lender places on a moveable asset — like a car — as security while the loan runs. You own and use the asset, but the lender's interest is recorded until you clear the loan.
• LTV (Loan-to-Value) LTV is the loan amount expressed as a percentage of the property's value. Lenders cap it — commonly up to about 75–90% depending on the loan size — so the remainder must come from your own down payment.
• MCLR (Marginal Cost of Funds-based Lending Rate) MCLR is an internal benchmark some banks use to price loans. It tends to move slowly and at the lender's discretion, so rate cuts can take time to reach borrowers.
• NOC (No-Objection Certificate) An NOC is the certificate a lender issues once a loan is fully repaid, confirming it has no further claim — used to remove the hypothecation or lien from the asset's records.
• Pre-EMI Pre-EMI is the interest-only payment you make on the amount disbursed so far for an under-construction property, until full disbursement or possession. Your principal does not reduce during this period.
• Prepayment / Part-Payment A prepayment (or part-payment) is extra money paid straight against the principal, on top of your EMIs. It reduces the balance, cutting either your tenure (most interest saved) or your EMI.
• Principal Principal is the amount you actually borrow, before interest. The EMI is directly proportional to it — double the principal and you double the EMI, with the rate and tenure unchanged.
• Processing Fee A processing fee is a one-time charge a lender levies to set up the loan, usually a small percentage of the amount (commonly around 0.25–1%). It is separate from interest and not part of the EMI.
• RLLR (Repo-Linked Lending Rate) An RLLR (also EBLR) ties your floating rate to the RBI repo rate plus a spread. Since October 2019 most new floating retail loans use such an external benchmark, so rate changes pass through faster and more transparently than under MCLR.
• Sanction vs Disbursement Sanction is the loan amount a lender approves in principle; disbursement is the actual release of the funds — often in stages for an under-construction property.
• Tenure Tenure is the length of the loan in months or years. A longer tenure lowers the EMI but raises the total interest, because you owe the balance for longer.

Want the maths too? Start with how EMI is calculated or open a calculator.