Convenient access to credit holds significant empowerment. The capacity to secure funds swiftly for immediate needs, followed by gradual repayment in manageable instalments, lies at the core of fostering financial inclusivity. Equated Monthly Instalments (EMIs) have garnered favour, offering the ability to disperse loan repayment over an extended duration, accommodating substantial financial obligations within a modest monthly budget. While standard EMI payments deliver convenience, there is an alternative that brings added benefits: upfront EMI payments. This approach presents an even more advantageous avenue for borrowers.
What is a regular EMI payment?
A regular EMI payment is the standard method of repayment, where you pay equal instalments every month over a specified tenure, consisting of both the principal amount and interest. This mode of payment is widely used for various types of loans and EMI purchases, making it a common choice for those seeking to manage their expenses more efficiently.
What is an advance EMI payment?
An advance EMI payment, as the name suggests, involves making EMI payments in advance. In this payment mode, you pay a lump sum amount, equivalent to a few EMIs, together. This bulk payment is made in advance, before the completion of the repayment tenure. This lets you enjoy the benefit of reduced EMIs over the loan tenure or a reduction in the loan tenure itself.
Use an EMI calculator to understand your EMIs
An EMI calculator is a practical tool designed to help borrowers estimate their Equated Monthly Instalments (EMIs) for loans, whether personal, home, or vehicle loans. With just a few basic inputs—typically the loan amount, interest rate, and loan tenure—it generates a clear breakdown of monthly payments, allowing borrowers to plan their finances more effectively.
By using an EMI calculator, you gain a quick snapshot of how much you’ll need to pay each month, including principal and interest portions. This insight helps borrowers understand if the EMI fits comfortably within their budget, enabling better financial planning. The calculator's interactive sliders or input fields allow users to experiment with various scenarios by adjusting the loan amount, interest rate, or tenure, helping them find an optimal EMI that meets their repayment capacity.
Furthermore, the EMI calculator displays an amortisation schedule, illustrating the gradual decrease in principal over the loan tenure. This is particularly beneficial as it demonstrates the actual interest burden and how it reduces as the outstanding balance decreases over time. In addition to ease of use, most online EMI calculators are accessible on multiple platforms, from websites to apps, making it convenient for users to calculate EMIs anytime, anywhere. This simple yet powerful tool supports informed borrowing, providing clarity and transparency to individuals before they commit to a loan.
How does paying EMIs in advance work?
Paying EMIs in advance, also known as advance EMI payment, involves making one or more EMI payments upfront when you take out a loan. Here’s a detailed breakdown of how advance EMI payments work and what borrowers need to know:
- Initial upfront payment
When opting for an advance EMI loan, the borrower pays a specified number of EMIs upfront. This is typically agreed upon at the time of the loan agreement. For instance, if two EMIs are paid in advance, the borrower starts repaying from the third month onward. - Reduced interest burden
Since the advance EMI covers a portion of the principal, the overall loan amount on which interest is calculated reduces slightly from the beginning. This often results in lower interest payments over time compared to loans with standard EMI structures. - Principal repayment in advance
In most cases, the advance EMI payment is applied directly to the loan principal, thus reducing the outstanding balance right from the start. This can be particularly advantageous in loans with high-interest rates, as it helps in reducing the cumulative interest payable. - Impact on loan tenure
Paying EMIs in advance can either shorten the loan tenure or reduce the overall EMI amount, depending on the terms agreed with the lender. Generally, borrowers who pay advance EMIs continue with their scheduled EMI amount, but the term of the loan may be reduced. - Interest calculation
The interest for an advance EMI loan is calculated based on the adjusted loan amount after subtracting the advance EMI payment. Since a portion of the loan is already settled upfront, this reduced loan amount means lower interest costs over time. - Improved eligibility and approval chances
Some lenders may consider advance EMI payments as a sign of financial stability, potentially enhancing a borrower’s eligibility for the loan. Paying EMIs in advance also demonstrates commitment, which may increase the chances of loan approval or even lead to better interest rates. - No EMI due for initial period
In advance EMI plans, borrowers do not have to make monthly payments during the initial agreed period, as the advance payment covers this duration. This can be beneficial for borrowers who anticipate a temporary shortfall in income or other financial obligations during this time. - Tax benefits
For certain types of loans, like home loans, paying EMIs in advance can allow borrowers to claim tax benefits on both principal and interest repayment under Sections 80C and 24(b) of the Income Tax Act, provided the loan is for property purchase.
By understanding these facets, borrowers can make informed choices about whether advance EMI payment suits their financial goals and budget, helping them to potentially reduce costs and manage cash flow effectively.
Things to check before paying EMIs in advance
- Check the lender’s advance EMI policy
Each lender has specific terms and conditions regarding advance EMI payments. Ensure you understand these terms, including any minimum or maximum limit on advance payments, as well as any restrictions on the number of EMIs that can be paid in advance. - Understand the impact on interest savings
Paying EMIs in advance may reduce the loan’s overall interest cost. Calculate how much you might save on interest payments with the advance EMI option, as the benefits vary based on loan type, interest rate, and remaining tenure. - Verify if there are prepayment charges
Some lenders charge prepayment fees if you pay off EMIs or make a substantial payment upfront. Before proceeding, confirm if any charges apply, as these can offset the benefits of reduced interest costs. - Confirm effect on loan tenure
Paying EMIs in advance can impact the loan tenure. Discuss with the lender to confirm if the advance payments will shorten the loan tenure or reduce the monthly EMI amount, as this choice can affect your overall financial planning. - Review your cash flow and liquidity
Consider whether paying EMIs in advance will impact your cash flow and liquidity. Ensure you have enough funds for other expenses and emergencies before committing a significant amount upfront, as this may otherwise lead to financial strain. - Understand tax implications
For home loans, both principal and interest payments offer tax benefits. Verify how advance EMI payments affect your tax deductions under Sections 80C and 24(b), as paying too much upfront may alter the tax-saving potential for the current financial year. - Check your future financial goals
Evaluate if paying EMIs in advance aligns with your long-term financial objectives. Consider if the money set aside for advance payments could be better used elsewhere, such as in investments or savings that may offer higher returns than the interest saved. - Know the repayment flexibility
Confirm with the lender whether you’ll retain flexibility for future payments. Some lenders restrict additional prepayments once advance EMIs are made, which could limit options if you want to make further payments to reduce interest later on.
By reviewing these points, you can make a well-informed decision about advance EMI payments, ensuring it aligns with both immediate needs and future goals.
Difference between advance EMIs and arrear EMIs
Feature |
Advance EMI |
Arrear EMI |
Payment timing |
Paid at the beginning of the month |
Paid at the end of the month |
Interest calculation |
Calculated on the outstanding loan amount at the beginning of the month |
Calculated on the remaining principal amount at the end of the month |
Initial payment |
Higher initial payment |
Lower initial payment |
Interest savings |
Lower interest over the loan tenure |
Slightly higher interest over the loan tenure |
Suitability |
Suitable for borrowers with surplus funds at the beginning of the loan |
Suitable for borrowers with regular income and monthly cash flow |
Total interest paid |
Generally lower |
Generally higher |
Example |
Suppose the loan disbursal is on January 1, 2023. The first EMI is paid on January 1, 2023. |
Suppose the loan disbursal is on January 1, 2023. The first EMI is paid on February 1, 2023. |
Benefits of making an advance EMI payment
- Improved loan eligibility: Choosing advance EMI payment can enhance your loan eligibility. Since the EMI burden is reduced, lenders may be more willing to approve a higher loan amount based on your repayment capacity.
- Lower monthly instalments: The primary advantage of paying EMIs in advance is that it leads to lower EMI amount throughout the loan tenure. This reduction in monthly instalments helps you manage your finances more effectively, especially during periods of financial strain.
- Better cash flow management: Advance EMI payment eases your cash flow burden as you pay a significant amount upfront. This helps in better cash flow management during the loan tenure, providing greater financial stability.
- Reduction in loan tenure: With lower EMIs to pay, you now have the option to reduce the loan tenure if desired. This means that the loan can be repaid faster, saving on interest costs and achieving financial freedom sooner.
Insta EMI Card features & benefits
How to avail of EMI payment in advance?
Making an advance EMI payment with the Bajaj Finserv Insta EMI Card is a straightforward process. You can pay your EMIs in advance through our customer portal by following these simple steps:
- Go to our customer portal by clicking on ‘SIGN-IN' button on this page
- Enter your mobile number, date of birth and verify your details with an OTP
- Click on the loan account for which you want to make an advance payment
- Choose the 'ADVANCE EMI' option from the list
- Enter the required details and proceed to pay
Conclusion
In conclusion, paying your instalments in advance offers several benefits. It helps you build good money habits and save money in the long run. By opting for early Equated Monthly Instalments (EMIs), you can reduce the amount you pay in interest and may even qualify for discounts from financial institutions. Paying EMIs ahead of schedule also boosts your creditworthiness, opening more financial opportunities for you. Plus, it brings peace of mind, knowing you have taken care of your financial commitments early. As technology makes financial transactions easier, choosing to pay your EMIs in advance is a smart and practical move. It gives you the confidence and efficiency to manage your finances effectively.
