Types Of EMIs For Loan Repayment And Their Differences

An EMI is the fixed payment amount paid by an individual to their loan lender. Every month, the EMI payment amount is debited from the borrower’s account at a certain date. Mostly secured and unsecured loans, such as vehicle and instant loan, are paid back in EMI (equated monthly installments). The borrower makes the EMI payments to the lender under a pre-agreed period called the loan tenure. The equated monthly installment payments, which are made monthly, include a contribution to the principal and interest amounts because the loan gets repaid completely under the specific period.

When a borrower repays their loan through a personal loan app at equated monthly instalments under a certain period, it helps them find the correct balance between their monthly expense and income ratio. To attract more customers, banks, online lenders, and NBFCs offer two different EMI payment options – EMI in arrears and EMI in advance. Let’s now acknowledge The two kinds of EMI payment options.

EMI in arrears – this EMI payment option is also called the standard EMI, referring to the EMI payment made by a borrower to the lender at a specific date. Every month over the decided loan tenure for paying off the loan completely. In the case of EMI in arrears, the entire principal loan amount is disbursed by the online loan app or lender  in the borrower’s account. But With the deduction of the processing fee. However, the lender does not deduct Advance EMI payment under this EMI option. It is more suitable for borrowers with insufficient funds to make a down payment while purchasing a vehicle, a home or other commodity.

EMI in advance – also called the advance EMI wherein The first EMI payment is paid to the lender. Under this situation, the entire principal amount is disbursed by the apps like nira or lender to the borrower’s bank account after deducting the first EMI amount and the processing fee. Under the first EMI amount, only the principal amount is deducted without any interest payment. This option of paying EMI in advance helps to reduce the principal loan amount for the pending EMI payments. However, from the second EMI payment, the borrower must pay the principal and interest amounts to the lender.

How is EMI in advance different from EMI in arrears?

  • Under EMI in advance. The first EMI payment is made at the time of disbursal of the loan. However, in EMI arrears, you do not need to make any advance EMI payment During the disbursal of the loan.
  • In EMI in advance, the principal loan amount is disbursed to the borrower’s bank account after deducting the processing fee and the first advance EMI. However, apps like kredit bee or lender deducts a one-time processing fee and disburses the rest of the principal loan amount to the borrower’s bank account.
  • In EMI, in advance, the annual percentage rate is higher. However, it is lower in EMI in arrears.

Both the options for loan repayment are good enough, but it depends on your financial budget which one suits you the best. For instance, if you can make an advance EMI payment along with the down payment during loan disbursal, go for EMI in advance. But if you don’t have enough funds at your disposal during the disbursal of the loan, you should choose EMI as an earlier option. It would be best to calculate the total cost of both options using an online loan EMI calculator.