How to Pay EMI in Advance: Key Benefits & Features Explained

How to Pay EMI in Advance

When you take any type of loan like a personal loan, home loan or education loan, the loan repayment can be done in several ways. One of the ways for loan repayment is advance EMI. Advance EMI is a smart option to choose as it gives you the flexibility to pay off the loan early and manage your finances comfortably. 

This guide explores the step-by-step process of paying EMIs in advance, the key features of advance EMI payments, and the benefits they offers. 

What is Advance EMI?

Advance EMI or Equated Monthly Installment paid in advance, refers to the practice of making EMI payments in advance. Unlike regular EMIs that start after the loan amount is disbursed monthly, advance EMIs are paid upfront often before the loan amount is credited to your account. In this, you pay a bulk amount that may be equivalent to a few EMIs in one single payment. This reduces the loan tenure or the number of EMIs over the loan tenure. As the EMIs can be paid early, it offers you the option to settle the loan sooner. This gives you the flexibility to manage your finances effectively. 

What is Regular EMI?  

Regular EMI refers to Equated Monthly Instalments. In this, you pay a fixed monthly instalment on an agreed-upon date each month till the completion of your loan tenure. EMI comprises the interest and the principal amount.  

EMI can be calculated in two ways: Flat Rate Method and Reducing Balance Method 

  • Flat Rate Method: In the flat rate method, the EMI amount is calculated by charging the interest on the original principal amount.
  • Reducing Balance Method: This is the most preferred method to calculate EMIs. The method reduces the principal amount with each EMI payment, making it better than the flat rate method. 

Also Read: Flat Interest Rate Vs Reducing Rate: Know the Difference

Difference Between Advance EMI and Regular EMI 

The difference between Advance EMI and Regular EMI lies in the timing of the EMI payment at the start of a loan tenure. Here’s a clear distinction: 

Advance EMI 

In advance EMI the borrower pays the first EMI (Equated Monthly Installment) at the time of loan disbursement.  

Features: 

  • The EMI for the first month is deducted upfront. 
  • The loan tenure effectively starts from the second month. 
  • Suitable for borrowers who can manage an upfront payment and want to reduce the outstanding loan amount from the beginning. 

Example: If your loan is disbursed on January 1, the first EMI is paid immediately (January), and the second EMI will be due in February

Regular EMI 

In regular EMI, the borrower starts paying the EMI after one full month from the loan disbursement.  

Features

  • The EMI payment begins after the loan disbursement date. 
  • The entire loan amount is available to the borrower for the first month. 
  • Suitable for borrowers who prefer to retain more funds initially. 

Example: If your loan is disbursed on January 1, your first EMI will be due on February 1. 

How to Make an Advance EMI Payment  

To make an Advance EMI Payment, follow these steps: 

  1. Check Loan Details: Ensure you know the loan provider, loan amount, EMI amount, and outstanding balance. 
  2. Log into Your Loan Account: Access your loan account through the lender’s website or mobile app. 
  3. Select Advance EMI Payment Option: Navigate to the section for prepayments or advance EMI payments. 
  4. Enter Details: Provide details such as the amount you want to pay in advance and any instructions required. 
  5. Confirm Payment: Review the details and confirm the payment. 
  6. Complete Payment: Make the payment through your preferred mode (net banking, debit/credit card, UPI, etc.). 

Key Benefits of Paying EMIs in Advance  

Paying EMI in advance has the following benefits like: 

  • Saves Interest: A key advantage of paying your EMIs in advance is saving on interest. As you pay the EMI in advance, the principal amount gets reduced, thereby decreasing the total interest paid over the loan term
  • Improves Credit Score: When you make timely EMI payments, you build a good credit history which helps you improve your credit score
  • Offers Financial Flexibility: Paying EMI in advance allows you to manage your expenses without a financial burden. You get the opportunity to create a buffer in case your expenses increase in the near future. 
  • Loan Tenure Gets Reduced: As you pay the part of total EMI amount in advance, your total loan repayment amounts get reduced, thereby decreasing the loan tenure. This allows you to pay off the loan early and become debt-free.  

Potential Drawbacks of Advance EMI Payments  

While advance EMI payments can offer certain advantages, they do come with potential drawbacks you must factor in:  

  • Less Liquidity: When you make an advance EMI payment, you have to pay more money upfront. This can strain your finances and disrupt your budget, especially if any unexpected expenses arise during that period. 
  • Impacts Investment: Because your funds are locked up in advance for EMI payments, you may have to postpone or miss out on potential investment opportunities due to lack of liquid finances.
  • Not Suitable for Some Loan Types: In some cases, where you have taken a home for an under-construction property, advance EMI is likely not a good option. 

Before you choose a payment method for loan repayment, you must assess which option best suits your current financial situation and goals. 

Impact on Credit Score and Loan Tenure  

Impact on Credit Score 

  • When you pay advanced EMI, it showcases financial responsibility and improves your credit score. 
  • As the EMI is paid in advance, there is a lesser possibility of missed payments leading to no penalties or late fees. 

Impact on Loan Tenure 

  • Tenure Remains Unchanged: Advance EMI payments have no impact on the overall loan tenure. The number of EMIs remains the same, as the advance payment only covers the initial EMIs in advance. The loan tenure begins after the advance EMIs are accounted for. For instance, if you pay two advance EMIs at the time of loan disbursement, your regular EMIs will start from the third month of the loan tenure.
  • No Reduction in Principle: Unlike prepayments, advance EMIs don’t lessen the principal amount. Thus, the total loan tenure and the interest over the course of the loan remain unaffected.
  • Impact on Interest Savings: Advance EMIs do not lead to significant interest savings since they only fulfil scheduled payments in advance, rather than reducing the outstanding balance. 

Thus, advance EMI payments do not change the loan tenure but only shift the timeline for the start of the EMI payments. If your financial goal is to lessen the interest or shorten the tenure, then opt for prepayment or part-payment.  

Also Read: Part Payment Vs Prepayment Vs Pre-Closure: When Is It A Good Option?

Considerations Before Opting for Advance EMI Payments  

While advance EMI payments can offer convenience, they may not be the right option for every borrower. Here are some key factors to consider before deciding on advance EMI payments:  

  • Assess Liquidity: When you make an advance EMI payment, you have to shell out a significant cash initially. Ensure you have sufficient money in savings for your other financial expenses or emergencies. 
  • Understand Lender Terms: Some lenders may have certain terms when you opt for the advance payment option. Understand these terms and get your queries addressed before you opt for this payment option. 
  • Consider Other Expenses: Advance EMI payments require a significant upfront amount. Ensure it doesn’t strain your finances or affect your ability to manage current expenses and your monthly budget. 
  • Assess Loan Payment Suitability: Advance EMI payment may not be ideal for certain types of loans. For instance, advanced EMI is not ideal for home loans for under-construction properties.  
  • Explore Other Payment Options: As per the loan that you opt for, you can choose other types of EMI payment options. For instance, if you want to pay off the loan early, you may opt for the prepayment option. 
  • Factor in Long-Term Goals: Consider your long-term financial goals and investment strategy. If your funds are tied up in advance EMI, you may have to delay a few investment opportunities that you may come across. 

Conclusion  

Advance EMI payment is a good option if you want to make upfront payments to provide relief in the initial stage of loan repayment. It offers you the time to manage cash flow, especially if you anticipate budget constraints in the future. Advance EMI payments are particularly beneficial for loans like home loans, where borrowers can manage a significant upfront payment, or education loans, where they provide financial flexibility until stable employment is secured.  

Frequently Asked Questions

What Is An Advance EMI Payment?

Advance EMI payment refers to making an Equated Monthly instalment for a loan before its scheduled due date. This allows you to make payments before time thereby reducing the principal and interest amount of the loan.

How Does Paying EMIs In Advance Affect My Loan Interest?

Paying EMIs in advance reduces the loan interest you pay on your loan, since the principal amount gets reduced.

Can I Make an Advance EMI Payment For Any Type Of Loan?

Yes, you can make an advance EMI payment for all types of loans including personal loan, home loan, car loan, education loan and more. 

Are There Any Charges or Penalties For Making Advance EMI Payments?

Many lenders have no charges or penalties for making any advance EMI payments, however, you need to check with your lender about such charges. Some lenders may charge penalties.

How Does Advance EMI Payment Impact My Credit Score?

Paying EMI in advance has a positive impact on your credit score. It improves the credit score and reduces any chances of late payments. 

Will Paying EMIs In Advance Reduce My Loan Tenure?

Yes, paying EMIs in advance reduces your loan tenure, as the outstanding amount decreases with each payment.

Can I Revert To Regular EMI Payments After Making An Advance Payment?

Yes, you can revert to regular EMI payments after making advance payment.

What Should I Consider Before Deciding To Pay EMIs In Advance?

Before deciding to pay EMIs in advance, consider your financial situation, potential prepayment charges, and how it impacts loan tenure, interest savings, and tax benefits.

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