EMI is the monthly instalment that is to be repaid by the borrowers for the loan taken by them. This EMI sometimes has to be paid in advance which is also known as the advance EMI. The meaning of advance EMI and its relevance is given below.
Advance EMI is a payment arrangement commonly associated with loans, such as home loans or car loans. In this method, the borrower is required to make a certain number of equated instalments (EMIs) in advance at the time of loan disbursement, typically in the form of post-dated cheques.
With Advance EMI, a specific number of these monthly instalments are paid upfront, usually before the loan amount is disbursed by the lender. The exact number of advance EMIs required is determined by the lender and the terms of the loan agreement. Depending on the lender’s policies and the borrower’s preferences, it could be one or more.
Interest Savings – Opting for advance EMI lowers overall interest costs by reducing the outstanding loan balance, particularly beneficial for long-term loans like mortgages.
Financial Planning Ease – Advance EMI aids in effective financial planning as borrowers have a clear understanding of future monthly obligations.
Accelerated Principal Reduction – By paying a portion of the principal upfront, borrowers begin reducing the loan’s principal from the outset, which can enhance home equity or diminish other loan balances.
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