How to Calculate Advance EMI and EMI In Arrears?

Updated on: 14 Dec 2021 // 28 min read // Personal Loans
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Taking short term loans, whether it is for the purchase of a car, or sponsoring your child’s education is quite common. While this popularity of the loans can be attributed to features like minimal documentation, quick processing, and easy disbursal, there is one more aspect that plays a significant role in ensuring that the borrower doesn’t shy away from opting for such loans, i.e., Flexible Repayment Options.

Starting from the tenure which usually ranges from 1 to 7 years, to the type of EMI, Advance or In Arrears, the borrower is free to take their pick, and repay the loan in a way that best suits their financial planning.

If you happen to be looking for a short-term loan, then you must have come across the terms Advance EMI and EMI in Arrears. Let us break down these terms for you, while also helping you understand how to calculate these using a Personal Loan EMI Calculator.

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Advance EMI

Under this repayment option, you are required to pay your first EMI to the bank in advance. This implies that the loan amount disbursed by the bank in your account will be Principal Amount minus the Processing Fee and the 1st EMI.

The twist in the tale is that the deducted EMI only comprises of Principal Component, and not the Interest Component. Hence, the interest that you pay over the remaining tenure of the loan will be on a lower Principal Amount than your loan amount. Of course, from your 2nd EMI onwards, both the principal component and the interest component will be a part of the monthly instalment.

EMI in Arrears

Essentially known as the standard EMI, under this repayment plan you are required to pay your EMI, every month on the pre-decided date. In this case, the loan amount disbursed by the bank in your account will be the Principal Amount minus the Process Fee. This is an ideal repayment alternative if you do not have the means to pay the first EMI upfront.

Advance EMI Vs. EMI in Arrears

Let us take a quick look at some of the distinguishing factors amongst these EMI types.

  • Advance Payment

As the name suggests, under Advance EMI, you will need to pay your 1st EMI in advance while availing the loan, whereas there is no such mandate under EMI in Arrears.

  • Principal Loan Amount

Since the 1st EMI is paid in advance, the principal amount becomes effectively lower in case of Advance EMI, which is not the case with EMI in Arrears.

  • EMI Payment

In case of Advance EMI, the 1st EMI only comprises of the principal component and not the interest component. The remaining EMIs however, comprise of both -principal as well as interest. In case of EMI in Arrears, each EMI from the start to the end of the repayment tenure is made up of both the components.

  • APR

When it comes to the Annual Percentage Rate, most banks offer the Advance EMI scheme for a comparatively higher rate, as compared to the Arrear EMI scheme. This is one aspect that needs your due diligence before you make the final call.

  • Monthly Outgo

As illustrated in the example below, your monthly instalment under the Advance EMI scheme will be comparatively lower than that under EMI in Arrears.

  • Down Payment

If you chose to make a down payment towards your purchase, the same will be higher for the Advance EMI plan as it will comprise of your first EMI towards the loan repayment. Understandably, the down payment will be lower for Standard EMI scheme.

Calculation of Advance EMI and EMI in Arrears

You can conveniently calculate the EMI for any loan amount, using the following formula –

EMI = [P x R x (1+R)^N]/ [(1+R)^N-1],

P = Principal amount 

R = Interest Rate per Month

N = Number of Monthly Instalments.

Of course, this may seem to be a little overwhelming if done manually, which is why we suggest you to carry out these calculations on Online EMI Calculator.

Please Note – To calculate the overall payouts under Advance EMI, you must consider (Loan Amount – Processing Fee) as the Principal Amount. On the other hand, in case of Standard EMI calculations, you can consider the Actual Loan Amount as the Principal Amount.

The table below illustrates an overview of the same loan amount, taken under Advance EMI and EMI in Arrears.

  • Loan Type – Car Loan
  • Price of Car – Rs. 8 Lakhs
  • Loan Amount Applied For Rs. 5 lakhs
  • Interest rate: 12%
  • Loan Tenure: 60 months
  • Processing Fees: Rs. 5,000


Disbursed Loan Amount 
(Applied Car Loan Amount – Processing Fees – Advance EMI)

Down Payment (Car Price – Disbursed Loan amount)

Total cost of the car (Down Payment + (EMI X No. of remaining EMI payments)

Advance EMI Scheme (A)


Rs. 5,00,000
– Rs. 5,000
– Rs. 11,011
= Rs. 4,83,989

Rs. 8,00,000
– Rs. 4,83,989
= Rs. 3,16,011

Rs. 3,16,011
+ (Rs. 11,011X 59)
= Rs. 9,65,660

Arrears EMI Scheme (B)


Rs. 5,00,000
– Rs. 5,000
= Rs. 4,95,000

Rs. 8,00,000
– Rs. 4,95,000
= Rs. 3,05,000

Rs. 3,05,000
+ (Rs. 11,122 X60)
= Rs. 9,72,320

Difference (A – B)

Rs. 111 less

Rs. 11,011 less

Rs. 11,011 more

Rs. 6,660 less

As can be seen, you will benefit by opting for EMI in advance, as it automatically reduces the principal amount, thereby reducing your EMI outgo over the years. However, if you are witnessing monetary constraints, it may be better to opt for Standard EMI or EMI in arrears, so that you can comfortably repay your loan amount over its actual tenure.

We hope that you are now fully aware of the difference between Advance EMI and EMI in Arrears, and the method of calculating each one of them. Should you face any difficulties in doing so, you can conveniently rely on a trusted Home Loan EMI Calculator Personal Loan EMI Calculator to accomplish the task for you!

Also Read: How Can You Calculate Your Personal Loan Eligibility Using MyMoneyMantra’s EMI Calculator?

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