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Any loan has to repaid along with interest. In the case of EMI system of repayment, interest for the entire loan tenure is computed and added to the principal amount. Then the sum is divided by the number of months in which the loan has to be repaid. The result is called EMI. This amount has to be repaid regularly. For accounting purpose the interest components of the EMI would be larger in the initial months and gradually go down. The real rate of interest will be much higher than the rate interest advertised by the Financial Institutions as the principal is also being repaid from first month onwards; but the interest is calculated for the whole loan tenure.