When you take out a loan, you repay it in small monthly instalments, which get deducted from your registered bank account. These monthly instalments are also known as EMIs (equated monthly instalments). Your loan EMI usually comprises both the interest and the principal amount.
However, there are multiple payment options available to manage your loan repayment. One such payment option is an advance EMI, which allows you to pay your monthly instalments before the due date.
What is advance EMI payment?
In case you have surplus funds, you have the option of paying your EMI before its due date. This payment option ensures that the amount you paid gets adjusted and no EMI gets deducted from your bank account on the due date.
For instance, Anu has a personal loan and her next EMI due date is August 2. While she is repaying her loan, she has surplus funds and wants to pay her upcoming EMI on July 16. She can use this advance EMI option and pay her EMI before the due date. Since Anu has already paid her EMI, there will be no deduction of the instalment from her registered bank account on August 2.
What are the benefits of paying your EMIs in advance?
Making advance payments on your EMIs offers several advantages that can significantly improve your financial health. By opting to pay EMIs in advance, you effectively reduce the outstanding loan principal, which in turn lowers the total interest payable. This can lead to notable savings over the loan tenure, especially in the case of long-term borrowings. Additionally, paying EMIs in advance can shorten your repayment period, helping you become debt-free sooner and giving you greater peace of mind. It also eases your future cash flow by reducing monthly obligations, thus providing improved financial stability. Advance EMI payments reflect positively on your credit profile, demonstrating strong financial discipline to lenders, which may boost your credit score. Moreover, with reduced liabilities, your loan eligibility could improve, increasing the chances of securing higher loan amounts or better terms. Overall, advance EMI payments offer greater flexibility, enhance loan management, and support long-term financial planning and stability.
No overdue EMIs
One of the biggest fears, while you’re repaying a loan, is having an overdue instalment. In such a situation, the advance EMI payment option comes in handy as it helps you avoid overdue. If you have a fear of insufficient balance or any technical issue related to your repayment bank account, you can choose this option.
Avoid penal charges
If you miss paying your monthly instalments on its due date, there are additional penal charges that may be applicable on such overdue EMIs. These penal charges will be an additional financial liability for you as a borrower. However, if you have a fear of missing your EMI due date, you can use the advance EMI payment option. This helps you in saving on penal charges.
Maintain a healthy credit score
It’s important to pay your monthly instalments on time. This helps you to maintain a good CIBIL Score. In case you fail to pay your EMIs on time, it might affect your credit score negatively. Having a low credit score, in turn, can make it difficult for you to get loan approvals in future. With the advance EMI payment option, you can avoid overdue instalments and ensure that your credit score remains unaffected.
If you’ve taken a loan from us, you can pay an advance EMI using our service portal – My Account on the web or our app. Click on the ‘Pay Now’ button to use our secured payment gateway and complete the transaction.
You can pay one EMI in advance if you’re a Flexi Loan customer. If you have chosen our Term Loan, you can pay up to five EMIs in advance.
Reduced Interest Burden:
Advance EMI payments help bring down the principal loan amount early in the repayment cycle. Since interest is calculated on the remaining principal, this reduces the overall interest liability across the tenure. This approach is especially effective for loans with high interest rates or longer repayment periods, resulting in notable cost savings.
Shorter Loan Tenure:
By making EMI payments in advance, you decrease the principal faster, which in turn shortens the duration of the loan. This means you can repay your debt earlier than expected, helping you to save on interest and move towards other financial goals with reduced long-term liabilities.
Improved Cash Flow:
Paying EMIs in advance may lead to lighter monthly instalments or deferred payment starts, giving you more breathing room in your monthly budget. This can help manage cash flow better, especially during financially demanding periods, and can ease your overall repayment journey.
Better Credit Score:
Advance EMI payments reflect strong repayment intent and consistency, traits that credit bureaus consider favourably. Over time, this disciplined approach can help boost your credit score, enhancing your creditworthiness for future borrowing needs.
Improved Loan Eligibility:
Reducing your EMI burden through advance payments can improve your debt-to-income ratio. This makes you a more attractive candidate for lenders, increasing the chances of qualifying for higher-value loans or negotiating better interest rates on future credit products.
Financial Flexibility:
Opting for advance EMI payments can give you greater freedom in handling future expenses. With fewer instalments or shorter repayment duration ahead, you can allocate funds towards savings, investments, or emergency needs, creating a stronger and more adaptable financial position.
Things to check before paying EMIs in advance
While advance EMI payments can offer considerable benefits, there are a few important factors to keep in mind before proceeding:
- Some lenders may charge penalties or fees for prepayment, which could offset the potential savings.
- The money used for advance EMI payments might yield better returns if invested in other financial instruments.
- Ensure that making advance payments doesn’t put undue pressure on your monthly cash flow or emergency reserves.
- Prepayment terms vary across loan types—home loans often come with more lenient prepayment policies, while personal loans may have stricter conditions.
Paying EMIs in advance can certainly be a smart financial move, especially when done strategically. However, it’s essential to evaluate both the benefits and limitations. Whether you choose to prepay part of the principal or opt for advance EMIs, the decision should align with your overall financial goals. When in doubt, seeking guidance from a financial advisor is always a wise step.
