an equated monthly installment (EMI) refers to the fixed payment amount made by an individual to the lender of a loan. the EMI payment is debited every month at a specified date from the account of the borrower. mostly, unsecured and secured loans such as personal loans (PLs) and vehicle loans are repaid in equated monthly installments (EMIs). the EMI payments are made by the borrower to the lender over a pre-agreed period of time known as the loan tenure. equated monthly installment payments made each month consist of the contribution towards both - the interest amount and the principal amount - so that over a specified number of years, the loan is repaid completely.
repaying a loan through equated monthly installments over a specified period of time can help the borrower find the right balance between his or her monthly income and expense ratio. in an effort to attract more customers, the banks and NBFCs offer two types of EMI payment options - EMI in advance and EMI in arrears. read below to find out more about different types of EMIs:
what is an EMI in arrears?
EMI in arrears, also called the Arrears EMI or the standard EMI, refers to the EMI payments made by a borrower to the lender at a fixed date each month over a specified loan tenure to pay off the loan in full. in the case of EMI in arrears, the lender disburses the entire principal loan amount to the borrower's account but after deducting the processing fee. in this case, the lender does not deduct any advance EMI payment. this type of EMI option is more suitable for those borrowers who don’t have sufficient funds to make a down payment while buying a home or a vehicle or any gadget of their choice.
what is an EMI in advance?
EMI in advance, also called the advance EMI, refers to the type of EMI payments where the first EMI payment is made in advance to the lender. in this case, the lender disburses the entire principal loan amount to the borrower's bank account but after deducting the processing fee and the first EMI amount. here, the first EMI amount consists of only the principal amount and does not include any interest payment. an advance EMI payment option helps in reducing the principal loan amount for the rest of the EMI payments. from the second EMI payment onwards, the EMI payments will consist of both the principal amount and the interest amount.
what's the difference between EMI in advance and EMI in arrear?
further details on the difference between an EMI in advance and EMI in arrear is provided below to help you choose the right type of EMI options for your loan repayment:
conclusion
both EMI in advance and EMI in arrears are good options for loan EMI repayment, but which one is suitable for you depends on your financial budget. for example, if you can afford to make an advance EMI payment in addition to the down payment at the time of loan disbursal, go for the EMI in advance option. but, if you don't have surplus funds at your disposal at the time of disbursal of the loan, it is better to settle for an EMI in arrear option. you can find out the total cost of your loan for both the EMI in advance and the EMI in arrear by using an online loan EMI calculator.
use CRED EMI calculator
