How To Calculate EMI In Advance And EMI In Arrears?

Aug 21st 2023
How To Calculate EMI In Advance And EMI In Arrears?

How To Calculate EMI In Advance And EMI In Arrears? In the field of loans, the borrowed amount is primarily repaid in the form of monthly payout which is known as Equated Monthly Instalment (EMI). These installments are paid by the borrower for a fixed period of time that is decided at the time of loan application and approval. The importance of EMIs is paramount as it is not possible for every one to repay the loan amount in one go. EMIs are beneficial for both the borrower and the lender. The lender can choose to seek benefit by applying the decided interest rate on the principal amount and receive the finalized amount at regular intervals in the form of EMI. On the other hand, a borrower finds it easy to pay the loan amount in smaller parts known the EMIs.

If you are looking to borrow loan, it is advisable to use various EMI calculators available online that can help you strike a perfect balance between your monthly income and expenses. In general, when it comes to repaying a loan, a majority of banks and financial institutions offer two repayment options to borrowers – EMI IN ADVANCE and EMI IN ARREARS. You will get to know both of them in the following part of this post. So, let’s check them out.

Advance EMI

What is Advance EMI? Also known as Advance EMI, an EMI in Advance is considered a repayment option where a borrower pays the first EMI in advance to the money lender. In this type of repayment setting, the principal loan amount minus the processing charges and the first EMI amount is disbursed to the borrower’s bank account. And, the first EMI deducted in advance EMI option consists of just the principal amount which therefore helps in reducing the principal loan amount for the leftover EMIs. Once the first EMI is paid by the borrower, the rest of the EMIs will be inclusive of both the principal amount and the applicable interest.

EMI In Arrears

It is the most preferred loan repayment option by lenders these days. Therefore, it is also known as standard EMI. In this kind of repayment scheme, the borrowers are supposed to pay their EMIs on a fixed date over a period of time. In this instance, the loan processing charges will be deducted from the principal loan amount before the lender disburses the loan funds into the bank account of the borrower. If the borrower is not able to pay the first EMI in full, this is undoubtedly the perfect repayment option for you.

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How To Calculate Advance EMI And EMI In Arrears?

The best way to figure out the amount that will go out in both the EMI cases is to look at this example. How are EMIs Calculated and what makes the two different? For example, if you come across a financial need of 4.5 lacs and want to take a loan to fulfil the same through a bank or a NBFC. Now, you get a lender who is offering you a personal loan amounting to 3 lacs with 12% annual interest rate for period of 3 years (36 months) and a Rs. 3, 000 as a processing fee.

Amount that is required – Rs. 4.5 lacs

Approved loan amount - Rs. 3 lacs

Interest rate – 12%

Loan period – 36 months (3 years)

Loan processing charges – Rs. 3,000

EMI Option

EMI value (Rs)

Disbursed Loan Amount (DLA)

Down Payment (DP)

Total Loan Cost (DP+EMI+No. of leftover EMIs)

EMI in Advance

Rs. 9866

Loan amount - 3, 00, 000
- Processing Charges - 3, 000
-EMI Rs. 9866
= Rs. 2, 87, 134

Amount required - 4, 50, 000
- DLA Rs. 2, 87, 000
= Rs. 1, 62, 866

Rs. 1, 62, 866 + (Rs. 9866*35) = Rs. 5, 08, 176

EMI in Arrears

Rs. 9964

Loan amount - 3, 00, 000
- Processing Charges - 3, 000
= Rs. 2, 97, 000

Amount required - 4, 50, 000
- DLA Rs. 2, 97, 000
= Rs. 1, 53, 000

Rs. 1, 53, 000 + (Rs. 9964*36) = Rs. 5, 11, 704


Rs. 98 less

Rs. 9866 less

Rs. 9866 more

Rs. 3528 less

Calculate Your EMI With EMI Calculator

From the above table, you can easily understand how much amount you would pay towards the borrowed amount in both the scenarios – EMI in Advance and EMI in Arrears. However, for better clarification of both the scenarios, it is advisable to contact the lender before signing the loan agreement.

EMI in advance vs EMI in arrears What To Choose?

According to loan experts, both the options - Advance EMI and the Arrears EMI repayment options are fine, however the selection of a specific option largely depends on the borrower’s financial circumstances. For instance, use an arrears EMI plan if your budget is not sufficient since you will be at ease and won’t stay away from the burden of making the first down payment. If you don't have any financial hinderances, it is better to pay the advance EMI because it would lower the principal loan amount.

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1. What Happens If The Interest Rates Are Fixed Or Floating?

In the case of a floating interest rate, choosing EMI in Advance option seems a feasible one for most borrowers.

2. I Don’t Have Sufficient Money For Down Payment. Which Option Would Be Better?

The best alternative for borrowers who lack the money to make a down payment on a loan is an EMI in arrears. This is due to the fact that you simply have to make the instalment on a monthly basis and the entire loan amount, less the processing costs, will be disbursed.

3. Under Which EMI Option, My Down Payment Would Be Higher?

Your down payment would be higher in the case of EMI in Advance option.

The Conclusion

If you are looking to avail a loan and confused between EMI in advance and EM in arrears in Delhi, you can refer to different types of EMI calculators available online. Almost every loan service provider and other portals feature these calculators. By using them, you can determine which EMI option you should opt for while taking a loan.

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