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Why can’t I find the EMI on my Prodigy Finance loan?

Katie Schenk - March 22, 2018

EMI


You may have opened your first bank account with the help of your parents at age ten. Or, you may have only gotten around to it when you headed off for your undergraduate studies. There’s a possibility your account is even newer than that. You might remember the way it felt to be so independent – or, you might not.

But, it all seems normal now, doesn’t it?

Banking, managing your finances, where you would go to get a loan, and what hurdles you need to jump through all make some sort of (perhaps slightly convoluted) sense in your head. This is how it’s done, you can tell yourself reassuringly.

That’s how you do it, for sure. But that’s not how everyone does it. Banking systems aren’t universal. Nor are loan processes. For that matter, there are significant differences in credit reports between countries and the agencies you would approach to obtain one.

If you’re considering an international study loan (whether it’s through an organisation like Prodigy Finance or you’re able to secure one in your host country), you shouldn’t expect to see the same metrics as you would on a local loan. 

EMI and fixed-rate loans

The banks in many countries use Equated Monthly Instalment (EMI) to give potential borrowers a breakdown of repayments and to show the cost of the loan. This figure represents the amount to be paid monthly – and it’s based on a fixed rate of repayment; whatever you pay, you pay the same amount every month.

In case you’re wondering, you can work out EMI using this equation:

(P x I) x ((1 + r)n)/ (t x ((1 + r)n)- 1)

  • P – principal amount borrowed
  • I – annual interest rate
  • R – periodic monthly interest rate
  • N – number of monthly payments
  • T – 12 (number of months in the year)

Borrowers can use EMI to compare loans provided the number of monthly payments is equal across all loans in question. Or, if the total amount is more important, you can consider that figure before dividing by the repayment duration.

EMI does have its limitations, however. For a start, it depends on a totally fixed interest rate. While that certainly appeals to some borrowers, it can strain lenders when the interest rate drops; everyone who has the option will wait until this time to apply for financing. And, if you lock yourself into a loan with a high interest rate, there’s often no getting out of it.

Moreover, EMI doesn’t easily allow for pre-payments, over-payments, and, therefore, early repayment. Any time extra money would be thrown at the account, the lenders would need to recalculate the repayment schedule. Not only does this require additional work, but it also reduces the guaranteed earnings on interest. (This, incidentally, is why there are often penalties associated with early repayment of fixed-rate loans.)

You won’t find EMI on Prodigy Finance loans

If you expect fixed-rate loans (because that’s the norm of your home banking system), EMI is metric you’ll look for in any loan document. But you won’t find it in your Prodigy Finance provisional loan offer; EMI can’t be used as there is a variable base rate - which is common across the world's strongest markets.

Instead, Annual Percentage Rate (APR) is used on Prodigy Finance loans. (In case it’s not where you live, just know that it is a financial standard in other parts of the world.)

APR takes into account the principal amount borrowed, as well as interest rates. It also includes any fees associated with the account (with the exception of late or other fees that are only levied if the borrower contradicts the terms of the loan).

Want to understand APR better? Just take a look at APR in the simplest possible terms. 


APR Explained Screen

Or, watch the video here.

APR is similar to EMI as it is a means of comparing apples to apples. It may be expressed differently, but it’s still a means of comparison.

But, it’s different from EMI insomuch as APR can have variable interest rates. Prodigy Finance, for example, provides loans with a LIBOR base. Your interest rate changes according to LIBOR fluctuations for the currency of loan dispersal.

Practically, this means that repayment amounts change over time. The minimum repayment amount you pay this month may be different than your expected contribution next month. Loans are recalculated every month based on the current balance and the current interest rate.

A key benefit of structuring loans in this manner is the ability to make extra payments and early repayments. Whenever money comes your way, you can put it towards your loan to reduce your debt burden, paying less interest over time and paying off the balance faster.

When you’re looking at educational loans, APR allows you to compare loan products with one another. And, at the same time, you don’t have to lock yourself into a set duration as you would find with fixed-interest loans using EMI as your comparison tool.

Nice, right?

While it may not seem normal to you now, it will once you get the hang of it – just as you learned how to use whatever banking system you grew up with. And, if you’re headed overseas for an international grad school education, getting the hang of new norms is something you’ll get used to quickly. 


Want to learn more about financing your international education?

Prodigy Finance offers you competitive loans that are breaking traditional barriers and affording you the opportunity to achieve more.


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