EMI (equated monthly instalment)

An EMI stays the same each month, but what it is made of changes. Interest is charged on the balance still owed, so early EMIs are mostly interest and later ones mostly principal. That is the reducing-balance method banks use.

A flat-rate quote, where interest is charged on the original amount for the whole term, looks cheaper than it is: a flat rate costs much more than a reducing rate with the same number. A prepayment cuts the balance, and the lender then either shortens the term or lowers the EMI; shortening the term saves more interest.