Types of EMI
Based on the extent of subvention, EMI can be classified into three types.
- Standard EMI
- No Cost EMI
- Low Cost EMI
EMI is calculated based on below formula = [P x R x (1+R)^N]/[(1+R)^N-1]
Where:
- P is the principal loan amount (the initial amount of money before interest).
- R is the monthly interest rate / 100. If the annual interest rate is given, it needs to be divided by 12 (12 months).
- N is the loan tenure in months (total number of payments).
Subvention Amount = (Txn Amount) *((R/100)/(1+ (R/100)) where R is annual interest rate
Standard EMI or CIB
Standard EMI is a payment option where the customer can pay in EMI and a standard interest rate is applied to calculate EMI. Reducing Balance method is used to calculate EMI.
Standard EMI
| Value Type | Value |
|---|---|
| Transaction Amount | 1,00,000 |
| EMI Tenure | 3 months |
| ROI | 14 % |
| Loan Amount | 1,00,000 |
| EMI | 34,114 |
| Interest Payable | 2,342 |
| Total Amount | 1,02,342 |
No Cost EMI
No Cost EMI is a payment option where the customer can pay in EMI and the interest is completely subvented by any sponsor. The effective interest rate becomes 0 in this case.
No Cost EMI
Calculation (Instant Subvention)
Subvention Amount = (Txn Amount) *((R/100)/(1+ (R/100))
Subvention Amount = (100000) *((0.0412)/(1+ 0.0412) =100000 * (0.0412)/ (1.0412) = 100000 * 0.039569727237 = 3956.9
| Value Type | Value |
|---|---|
| Transaction Amount | 1,00,000 |
| EMI Tenure | 3 months |
| ROI | 14 % |
| Subvention Percentage | 4.12 % |
| Total Subvention Amount | 3956.9 |
| Loan Amount | 96,043.1 |
| Total Amount | 1,00,003 |
Low Cost EMI
Low Cost EMI is a payment option where the customer can pay in EMI and the interest is partially subvented by any sponsor. The effective interest rate becomes less than the actual interest rate in this case.
Low Cost EMI
Calculation (Instant Subvention)
Subvention Amount = (100000) *((0.04)/(1+ 0.04) =100000 * (0.04)/ (1.04) = 3846.2
| Value Type | Value |
|---|---|
| Transaction Amount | 1,00,000 |
| EMI Tenure | 6 months |
| ROI | 14 % |
| Subvention Percentage | 4.00 % |
| Total Subvention Amount | 3846.2 |
| Loan Amount | 96153.8 |
| Total Amount | 1,00,118 |
Calculation (Post Subvention)
| Value Type | Value |
|---|---|
| Transaction Amount | 1,00,000 |
| EMI Tenure | 6 months |
| ROI | 14 % |
| Subvention Percentage | 4.00 % |
| Total Subvention Amount | 3846.2 |
| Loan Amount | 1,00,000 |
| Total Amount | 1,04,123 |
| Amount Payable by Customer | 1,00,276.8 |
Pre-requisites
- Payment Gateway Integration: Merchants need to have a payment gateway that supports EMI transactions. They should ensure that the payment gateway they are using offers EMI options and integrates seamlessly with their e-commerce platform or point-of-sale system.
- Merchant Account Setup: Merchants may need to set up a merchant account to enable EMI options. This might involve additional fees or requirements depending on the payment gateway and the merchant's agreement.
- Legal and Regulatory Compliance: Merchants must ensure compliance with local laws and regulations governing EMI transactions. This includes disclosure requirements, interest rates, terms and conditions, and any consumer protection laws that apply to credit transactions.
- Technical Integration: Integration with EMI APIs such as EMI calculator, scheme validation and payment APIs offered by Pine Labs may be required. This involves technical changes to the merchant's website or point-of-sale system to facilitate EMI calculations, display EMI options to customers, and process EMI transactions securely.