Know the difference between EMI prepayment and EMI late payment
EMIs are an important aspect of loan repayment, providing structured and predictable payments that help borrowers manage their finances while repaying their loan.
Equal Monthly Installment (EMI) is a fixed monthly payment made by a borrower to a lender to repay the loan over a specified period of time. EMI consists of principal and interest components.
EMI is an important aspect of loan repayment, providing structured and predictable payments that help borrowers manage their finances effectively while repaying their loan. The flexibility of EMI structure allows borrowers to choose the repayment plan that best suits their financial situation and future income expectations.
Also Read: Missed your home loan EMI? Need to know what happens next
Key components of EMI:
principal:
This is the original amount of money borrowed from the lender.
interest:
The cost to borrow principal is usually expressed as an annual percentage rate (APR).
This article details the key differences between Advanced EMI and Delinquent EMI.
The key difference is when you first pay your EMI and how this affects the loan amount and interest.
EMI payment timing: This indicates whether the EMI is prepaid or postpaid.
If the EMI is paid in advance, the borrower pays the EMI at the beginning of the month. This reduces the outstanding loan amount and the interest accrued in the following months.
On the other hand, delayed EMI is a more common option where the EMI is paid at the end of the month.
Let’s understand it in detail.
Pre-EMI:
First payment: The first EMI is paid up front when the loan is disbursed. This initial payment usually consists of principal only.
Benefits: Because you'll be paying off some of the principal immediately, it reduces the total loan amount you owe. This means the overall interest paid over the life of the loan is lower.
However, it is important to note that it requires a larger initial payment, so it may not be feasible for everyone. Also, the interest rates of advanced EMI options may be slightly higher compared to overdue EMIs.
Delinquent EMI (Standard EMI):
First payment: You start paying EMI at the end of the first month after disbursing the loan. The first EMI includes both principal and interest.
Benefits: The initial payment is lower compared to Advanced EMI. Slightly lower interest rates may be offered on overdue EMIs.
In this case, you will pay more interest overall because you do not reduce the principal amount in advance.
Prepaid EMI or Fuji EMI, which is better?
Choose between prepaid and deferred EMI:
- If you have the funds to pay a larger advance and want to save on interest charges in the long run, advance EMI can be a good option.
- If you need to keep your initial outlay low and are comfortable paying slightly higher interest, then deferred EMIs are a more common option.
- Before making a decision, it is always advisable to compare loan offers from different lenders and understand the specific terms and conditions of prepaid and delinquent EMI options.
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