I want to prepay a loan. I am told the EMI paid till now is mostly interest and the principal is due. Why? The bifurcation between principal and interest works on a decreasing basis, so that the interest component decreases over time, while the principal component increases. If you prepay, you lose the interest already paid. EMIs are financial structures constructed in the same manner and the effective interest paid can be higher than the quoted number. Since borrowers mostly care about how much the EMI is, lenders get away without explaining the math and the effective rates.
