It is immensely empowering to be able to obtain credit easily when you need it. This credit allows you to meet the most pressing and urgent needs of the moment. However, the real cycle starts after you have to repay that credit. One good repayment strategy that helps ease the repayment is the advance EMI payment.
Advance EMI (Equated Monthly Installment) payments differ from regular EMIs in the sense that they effectively reduce the actual loan amount. If you have extra money, choosing the advance EMI payment option can drastically lessen the stress of repayment. The benefits of advance EMI payment go beyond this. Here are the 5 benefits of advance EMI payment over regular EMIs you must know.
What is an EMI Payment in Advance?
Regular EMI payments and advance EMI payments are the two typical repayment options for EMIs. The advance EMI payment option is available to borrowers who have extra money to pay their EMIs ahead of time.
Numerous NBFCs and prestigious banks offer this loan type today. If you pick the advance EMI payment option, your repayment bank account will not debit monthly EMIs against the relevant time. However, since the amortization schedule won’t change, making an early EMI payment won’t impact the loan interest rate.
Benefits of Paying Advance EMIs
Equitable Monthly Installments (EMIs) management can resemble a never-ending financial juggle. However, advance EMIs prove to be most useful and beneficial for reducing the principal loan amount and ultimately saving interest. There are many advantages to paying your EMIs early. Here are the top 5 benefits of advance EMI payment you must know:
1. Reducing Interest Outgo
The effect of advance EMIs on interest payments is by far their greatest advantage. The main amount, or the actual amount of the loan you took out, and interest make up each EMI you pay. Your outstanding principal is lessened when you make an advance payment on an EMI. Consequently, this lowers the interest amount computed on subsequent EMIs.
Let’s use an example to explain this better. Assume you have a 5-year, ₹5 lakh loan with a 10% interest rate. ₹10,624 would be your EMI on a regular basis. The amount of principal that remains after the first month’s advance EMI payment of ₹25,000 is reduced to ₹4.75 lakh. This results in a substantial interest rate reduction throughout the loan. To determine the accurate amount you can save by making advance EMIs, use online EMI calculators.
2. Lower EMI Burden
In addition to saving you money on interest, advance EMIs can help you better manage your monthly EMI payments. This can occur in two ways:
- Less Principal Equals Less EMI: You can naturally lower the amount of future EMIs by using advance EMIs to reduce the outstanding principal. If your finances will get tighter at a later point in the loan term, this might be useful.
- Reduced Loan Term (Available): Once you’ve made a specific number of payments, some lenders let you utilize some of your advance EMIs to reduce the length of the loan. This results in a quicker loan closure and additional interest savings by lowering the total number of EMIs you must pay.
Reduced interest rates mean better cash flow and more freedom to arrange your monthly spending. The money you save might be used to cushion against unforeseen costs or used toward other financial objectives.
3. Building a Stellar Credit Score
Your credit score has a big impact on both the interest rates you will be offered and your future ability to borrow money (loan). Paying your EMIs on time and in advance will improve your credit record. Potential lenders will see this as evidence of your sound financial management and credit control. Better offers on loans, credit cards, and other financial goods can become available in the future with a higher credit score.
4. Peace of Mind and Avoiding Missed Payments
Due dates for EMIs may occasionally be forgotten for numerous reasons. This worry of unintentionally missing payments owing to forgetfulness or inadequate cash in your account is eliminated with advance EMIs. In addition to incurring late fees, missing payments have a detrimental effect on your credit score. Prepare ahead of time with advance EMIs to avoid these misses and have peace of mind.
5. Potential Prepayment Discounts
Although they are less frequent, some lenders can give prepayment reductions for early loan closures brought about by advance EMIs. This may be one more reason to think about using this tactic. There are situations where interest paid on loans (home loans, college loans, etc.) qualifies for perks or tax deductions. You can take full advantage of these tax advantages and minimize your overall tax burden by making advance EMI payments and lowering the total interest component.
How to Calculate Advance EMI Payments?
It’s easy to figure out how much advance EMI payments to make by using an advanced EMI calculator. Doing so can help you plan and take full advantage of loan prepayment advantages. This is how to figure out how much advance EMI you will receive:
Find out how much of your loan’s principal is still owed first. You can get this information by calling your lender or by looking at your loan statement. Next, multiply the loan interest rate by the outstanding principal balance, then divide the result by 12 to determine the interest portion of your current installment payment (EMI) (for monthly installments).
To find the main component, deduct the interest component from your typical monthly installment amount. An advance EMI payment is any sum of money paid over and above the principal component.
For instance, the interest component would be ₹3,750 (5,00,000 x 0.09 / 12) if your outstanding principal is ₹5,00,000, your interest rate is 9% annually, and your regular EMI is ₹10,000. ₹6,250 would be the main component (10,000 – 3,750). Any amount over ₹6,250 would be considered an advance EMI payment, which will hasten the reduction of your principal balance.
Conclusion
If you are wondering, ‘can I pay emi in advance?’, you have already found an answer to your question. EMIs are an easy and effective instrument for repaying money in installments. You can minimize your monthly EMI load, save money on interest, and improve your credit score by carefully prepaying your EMIs.
You must pay attention to prepayment penalties and give your emergency fund top priority. By giving these factors some serious thought and talking through your alternatives with your lender, you may use advance EMIs to help you reach your financial objectives and open the door to a better financial future.
FAQs
Can we pay EMI in advance?
Absolutely! Advance EMI is an option available to most borrowers. It’s best to check with your specific lender to confirm their process for making advance EMI payments.
Can I pay my credit card EMI in advance?
While less common than with loans, some credit card issuers might allow advance payments toward your credit card balance. However, they are generally not treated as an “advance EMI” with the same benefits.
What is an advance EMI?
An advance EMI is a payment made at the start of a loan term to reduce the principal balance and accelerate interest savings.
How do advance EMIs save money?
Advance EMIs immediately reduce the outstanding principle, resulting in lower interest payments over time.
What is an advance EMI calculator?
An advance EMI calculator helps you estimate the impact of making advance EMI payments on your loan.
