Pros and Cons of Pre-EMI and Full-EMI

Real estate rates are skyrocketing over the last few years, making purchases challenging for the common person. Therefore, a home loan is an effective way to finance a home purchase. Once obtained, you can repay a loan in multiple ways, but you might need to choose between a pre-EMI and a full EMI option. Understanding what the full and pre-EMI interest means is crucial for successful financial management during the loan tenure. Read on to learn what is a pre-EMI interest schedule and how it differs from a full EMI schedule.
 

What is Pre EMI?

When you choose the pre-EMI option, you only pay the pre-EMI interest part of the instalments without any principal component. 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.

Also Read: Understand Your EMI: Equated Monthly Installment
 

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

Here are a few points of differences between full and pre-EMI interest on Personal Loan options
 

• Loan Disbursal

  When you receive the loan amount in full at once, you typically choose the full EMI repayment option. On the other hand, the pre-EMI repayment schedule disburses the approved loan amount in portions. 

• Interest Rate

  If you choose the pre-EMI interest option, the payable interest depends on the payment the lender makes to the builder at different stages of construction. In contrast, the interest component in a full EMI option depends on the total principal amount you receive after approval.

• Payback Tenure

  The full EMI option has bigger EMIs with both the interest and principal components, so the repayment takes place quickly. In a pre-EMI repayment schedule, the repayment starts after the pre-EMI period, usually after the home's complete construction. It delays the loan repayment and extends the payback tenure.

• Instalment Payment Schedule

  The monthly payments start after construction in the pre-EMI repayment option. On the other hand, monthly payments in a full EMI option begin as soon as the lender disburses the Home Loan.

• Impact on the Loan Plan

  In a full EMI repayment option, the total loan cost with principal and interest components reduces with each EMI payment. However, in a pre-EMI repayment option, the pre-EMI interest payments only affect the principal amount, repayment tenure, and interest rate once they start paying the full EMIs.

• Right to Sell the Property

  If you use a pre-EMI option, you can sell the property immediately after its construction. However, a full EMI option prohibits you from selling the property for a specific time.

• Influence on the Finances

  Since you need to pay only the interest amount during the pre-EMI period, paying them is more manageable than full EMIs.

  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.

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 loan sooner after possessing the property. Moreover, since pre-EMI schedules have longer repayment terms, the loan cost eventually increases. Therefore, the final choice between pre- and full EMI schedules depends on your priorities and financial resources. Opt for a pre-EMI plan if you feel insecure about your finances to pay full EMIs. However, go for a full EMI loan plan to become debt-free sooner. 

Equated monthly instalments are a crucial part of a Home Loan. Therefore, knowing the difference between pre and full EMI options is extremely important. It will help you make an informed choice between the two EMI options and repay the loan without hassles. Perform a pre-EMI interest calculation using an online calculator to make the best decision that does not affect your finances.