EMI in Advance vs. EMI in Arrears

Unsecured loans like personal loans, credit cards and other types of auto loans and secured loans like car loans are paid in monthly installments. Monthly Installments (EMIs) paid by the borrower to the lender over a particularized period is called the loan tenure. The payments made each month can be divided into two parts; the principal amount and the interest. By repaying the loan over a tenure, the borrower can design a budget for managing their expenses through the month. The borrower can also find out how much the loan will cost him/her by using the EMI calculator.

Lender banks compete with each other to attract extra customers by providing flexible loan repayment options with instant loan approval and disbursal and minimal paperwork. There are two types of EMI payments available:

• EMI in Advance
• EMI in Arrears

What is EMI in Arrears?

EMI in Arrears is also known as standard EMI or Arrears EMI. The borrower has to make EMI every month under this method. Under Arrear EMI, the lender bank disburses the loan amount excluding the processing fee to the bank account of the borrower. If someone doesn't have sufficient funds to make down payment, then the Arrear EMI scheme is ideal for them.

What is Advance EMI?

Many banks offer EMI in Advance or Advance EMI throughout the country. Under Advance EMI, the first payment is made in advance by the borrower to the bank. After that, the bank disburses the principal amount excluding the processing fee along with the first EMI amount to the lender's bank account.

In Advance EMI, the first EMI amount doesn't consist of the interest amount; it only consists of the principal amount. The principal loan is deducted from the rest of the payments. However, the EMI payments made after the initial payment include both the principal amount and the interest.

Advance EMI Vs. Arrear EMI