We study a model of consumer debt where the only borrowing instruments are loan contracts with Equated Monthly Installments (EMIs). We calibrate the model to the contract particulars of loan-level administrative data from an Indian non-bank financial company. Indian households are infrequent borrowers and are more likely to stick to their payment schedule once they borrow. Our model accounts for most of these empirical regularities; it also finds a rationale for the ubiquitous presence of prepayment penalties in the EMI loan market. Pre-payment penalties mitigate the adverse selection of potential defaulters into the borrower pool by reducing incentives for the pre-payers to close a loan early, thereby improving welfare.