Can I pay EMI in advance?

Equated Monthly Instalments (EMIs) are a popular way to manage large expenses such as loans for homes, cars, or personal needs. They provide a structured repayment schedule that makes it easier for individuals to plan their finances

However, despite all the obvious benefits of paying EMIs on time, borrowers often wonder if they can pay the EMI in advance as well. This is a particularly popular question because by paying the EMIs early, borrowers expect the loan tenure to get shorter and therefore, pay less interest in the long term. Thus, the overall cost of taking a loan comes down significantly when borrowers pay the EMIs in advance.

If you want to pay your EMI in advance, the answer is yes, you can. But, there is some extra nitty-gritty that you need to go through as well. Let us dive in and find out.

Use an EMI calculator to understand your EMIs

Before going into the specifics of advanced EMI payments, it’s important to understand how EMIs work. An EMI is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are used to pay off both the principal and interest on a loan over a specified period, and you can use an EMI calculator to find out how it will affect your expenses in the future. 

Read more: Minimum salary required to get a personal loan

How does paying EMIs in advance work?

Paying an EMI in advance essentially means paying one or more of your monthly instalments before their scheduled due date. This can be done either at the start of the loan term or any point during the repayment period. There are two main ways to make advance payments:

Loan prepayment or part payment

This involves making a lump sum payment towards the principal amount of the loan. By reducing the principal, the borrower can lower the total interest payable over the loan tenure. Personal loan prepayment or personal loan part payment is very popular and as a borrower, you can contact your bank or lender to explore options related to this scheme.

Advance payment of scheduled EMIs

This means paying the upcoming EMIs ahead of their due dates. For instance, if your EMI is due on the 5th of each month, you could pay the next three months’ EMIs in a single payment.

Read more: Personal loan statement – how to download & view

What are the benefits of paying EMIs in advance?

Here are some reasons why you should start paying your EMIs in advance if it is possible for you:

Saves interest

One of the primary advantages of paying EMIs in advance is the potential to save on interest. Since the interest component of an EMI is calculated on the outstanding principal, reducing the principal early can significantly decrease the total interest paid over the loan term.

Boosts your credit score

Consistently paying EMIs in advance can positively impact your credit score. It demonstrates to lenders that you are a responsible borrower, potentially making it easier to obtain personal loans in the future.

Gives you financial flexibility

By paying EMIs in advance, you can create a buffer for yourself. In case of future financial instability, you will have already covered some of your obligations, reducing stress and the risk of default.

The loan tenure is shortened

Prepaying your loan principal or EMIs can shorten the overall tenure of your loan. This means you can become debt-free sooner than initially planned, which is always a financial advantage.

Read more: Apply for a short-term loan in India

Things to check before paying EMIs in advance

Even though the benefits are great, here are some things that you should consider before paying EMIs in advance:

• Some lenders impose penalties for prepaying loans. 
• The funds used for advance EMI payments could be invested elsewhere.
• Ensure that paying EMIs in advance does not strain your cash flow. 
• Different types of loans have varying terms regarding prepayments. For example, home loans often have more flexible prepayment options compared to personal loans.

Paying EMIs in advance can be a strategic financial move, offering a lot of extra benefits. However, before you make the final decision, it is important to weigh the pros and cons of paying EMIs in advance.

Whether you decide to prepay a portion of your loan principal or make advance EMI payments, the key is to ensure that your decision supports your overall financial health and future plans. Always consult with a financial advisor if you have any doubts or need personalised advice.