Difference Between Pre-EMI and Full EMI: Which is Better for You?
Real estate prices have skyrocketed over the last few years, making home purchases challenging for the average person. Therefore, a home loan is an effective way to finance the purchase of a home. Once obtained, you can repay a loan in multiple ways, but you might need to choose between a pre-EMI vs full EMI option. Understanding what the full EMI refers to and what a pre-EMI payment option means is crucial for successful financial management during the loan tenure. Read on to understand the difference between a pre-EMI vs full-EMI schedule, how the loan amount is disbursed, and how it impacts your loan EMI, home loan interest, EMI calculation, and overall repayment of the principal amount.
What is Pre EMI?
Pre-EMI is the option where you pay only the interest portion of your loan instalments, without repaying the principal initially. The loan provider also releases the loan amount in tranches. Therefore, it would be better to need different amounts of money at various stages rather than a lump sum. Considering this, a pre-EMI schedule cuts down the loan EMIs, as you repay the loan by paying only the interest. You start paying the principal component only after a particular stage.
What is Full EMI?
Full EMI is the instalment amount you start paying after the pre-EMI period is over, and the property is completely constructed. As these EMIs include both the principal and interest amounts, you finally begin repaying the outstanding loan amount rather than paying only the interest during the pre-EMI period.
Differences Between Pre-EMI and Full EMI
When you take a home loan, the loan amount is disbursed either in full or in stages during construction. This choice decides whether you start with a pre-EMI payment option or directly pay full EMI. To better understand the difference between pre-EMI and full EMI repayment, here are the main points:
| Aspect | Pre-EMI Option | Full EMI Option |
|---|---|---|
| Disbursement of Loan Amount | Loan is disbursed in parts, linked to construction progress | Entire loan amount is disbursed at once |
| EMI Refers To | Only the interest component of the home loan until construction is complete | Full EMIs cover both principal loan amount and interest |
| When You Pay the EMI | You pay once the amount is disbursed in stages; repayment of the principal amount starts later | You start paying the complete EMI immediately after the full loan amount is disbursed |
| Monthly Payments | Pre-EMI amount is lesser, as it only includes interest paid on the loan taken | EMIs are higher since they include both repaying the principal amount and interest |
| Loan Tenure | Repayment of a home loan is delayed, as principal repayment starts at a later stage | Tenure remains shorter since you begin paying the full EMI upfront |
| Tax Deduction | Limited deductions on the interest during construction | Can claim tax benefit on both principal and interest components |
| Flexibility | Opt for pre-EMI if you want to reduce payments until construction is complete | Opt for full EMI if you want quicker repayment of the loan |
| Property Sale | Can sell the property once construction is over | Restrictions apply until the loan is fully repaid or a specific lock-in ends |
| Affordability | Good if you want lower payments during construction | Better for long-term savings since interest is compounded based on the loan amount |
Also Read: Personal Loan EMI Calculator Benefits
Best Conditions for Full EMI and Pre-EMI Options
Let's look at the conditions when full and pre-EMI options are better:
- Full EMI is a suitable option to hold the purchased property for several years. However, pre-EMI is a better option if you plan to sell the property after completing its construction.
- Full EMIs are more suitable if you can make timely EMI payments. In contrast, pre-EMI is more appropriate if you have limited funds and need to pay rent and other obligations before the property's construction and possession.
- Full EMI would be more advantageous if you want to enjoy tax breaks during the repayment period. With a pre-EMI, the tax benefits will only start after the full EMI period begins.
- If the difference between full and pre-EMI interest is large, you can invest it elsewhere to gain higher returns by choosing a pre-EMI schedule. However, opt for a full EMI schedule if you cannot find any more profitable investment opportunities. Use a pre-EMI interest calculator to know the difference and make an informed decision.
Also Read: Understand Your EMI: Equated Monthly Installment
Who Should Choose a Pre-EMI or Full EMI Schedule?
If you want to save money ahead of the full EMI payments, you can invest it into other investment avenues by choosing a pre-EMI option through an online loan app. Calculating the loan cost and full EMI amount using a flexi EMI calculator will help estimate the price and help make an informed decision. Pre-EMI option is also better if you plan to sell the property as soon as its construction is finished. Moreover, it would be a greater alternative if you expect a change in your earnings or cannot afford full EMI payments for now. Before opting for a flexi loan, make sure to check the eligibility requirements for a flexi loan to ensure you meet all the necessary criteria.
A Full EMI payment is suitable if you intend to repay the home loan sooner after possessing the property. Moreover, since pre-EMI repayment schedules have longer repayment terms, the home loan cost eventually increases. Therefore, the final choice between pre-EMI vs full EMI schedules depends on your priorities and financial resources. Consider a pre-EMI payment option if you are concerned about your financial ability to pay the full EMI. However, go for a complete EMI loan plan to become debt-free sooner.
Equated Monthly Instalments (EMIs) are a crucial component of any home loan. Therefore, knowing the difference between pre-EMI and complete EMI repayment options is extremely important. It will help you make an informed choice between the two EMI repayment methods and repay the loan without any hassle. Perform a pre-EMI interest calculation using an online EMI calculator to make the best decision that does not affect your finances.
