Reduced monthly installments for loans lead to a decrease in overall loan amounts; your questions addressed
=========================================================================================
In the world of personal finance, advance Equated Monthly Installments (EMIs) and regular EMIs play a significant role, particularly in home loans and Loan Against Property (LAP). Let's delve into the workings of these EMIs and understand their implications.
Recently, Subodh Kumar took three advance EMIs for his home loan of Rs 72 lakh, which was disbursed on July 7, 2021. Advance EMIs are often collected by lenders as a means of securing upfront payment or as a buffer for potential defaults. However, it's important to note that regulations, such as those from the National Housing Bank (NHB) in India, ensure that lenders pay interest on these advance EMIs at the same rate as the home loan interest to prevent undue interest costs on borrowers.
Advance EMIs do not reduce the principal loan amount immediately; instead, they shift the payment schedule forward. This means the regular EMI payment schedule is postponed equivalent to the number of advance EMIs paid. Regular EMIs typically start after the loan disbursement, and borrowers usually begin repaying monthly installments from the month following the disbursement of the loan amount.
In an advance EMI scenario, regular EMIs usually start after the number of months the advance EMIs were paid. For instance, if Subodh Kumar pays three advance EMIs, his regular EMIs might start from November 2025, a year and a half after the loan disbursement.
While advance EMIs can impact cash flow as they are a burden, they can also provide a more manageable repayment structure when converting credit card debt. Keshav Pradhan, for example, has an outstanding credit card debt, and converting it into EMIs might help manage his repayment more effectively.
On a different note, Sujan Yadav is considering a LAP. Unlike home loans, LAPs do not require end-use proof at the time of disbursal, but lenders will evaluate the borrower's ability to repay. Abhijeet Das, who recently updated his PAN record to include his father's full name, while it was previously in initials, does not need to update his home loan records with his father's full name.
It's essential to note that a steady source of income and regular tax returns are necessary for a LAP. Moreover, some lenders may impose a lock-in period on a LAP. As always, borrowers should always check the specific terms from their lender regarding advance EMI collection and the start of regular EMIs.
In other financial news, Union Bank of India has waived minimum balance charges for savings accounts from an unspecified date. Vishal Sethi, who repaid his car loan six months ago, is still showing in his CIBIL records. To rectify this error, Vishal can register a request for rectification under the Dispute section on www.cibil.com.
This article is written by the founder of AZUKE Personal Finance Advisory, aiming to provide insights and clarity on various financial matters. Stay tuned for more informative articles on personal finance.
References:
- Investopedia
- BankBazaar
- Financial Express
- In the realm of personal finance, Defi, a novel financial technology, is emerging as a potential disruptor, offering decentralized financial services without intermediaries.
- The DEFI market, while still in its nascent stages, is rapidly gaining traction, with businesses recognizing its potential to streamline finance operations and boost efficiency.
- As Subodh Kumar navigates his personal finance journey, he might consider exploring Defi platforms for low-cost borrowing and higher returns on investment, but it's crucial to understand the risks associated with such platforms.
