Financial Updates

EMI Calculator

Calculation of Advance EMI and Arrears EMI

What is EMI?

EMI or Equated Monthly Installment is generally defined as a fixed amount paid by a borrower to the lender at a specified date at a particular interest rate each calendar month.

Types of EMI

Most of us might be unaware but there are actually two types of EMI schemes available to the borrower. This includes Advance EMI scheme and Arrears EMI scheme these EMIs easily calculate by EMI Calculator.

Advance EMI Scheme

In this scheme the borrower pays one advance installment equivalent to EMI to the bank. The bank then deducts the amount equal to this installment from the principal amount of the loan. This means the principal amount for the loan is reduced for the first month by paying Advance EMI. The principal would however remain the same for the second EMI onwards.

Arrears EMI Scheme

This refers to the normal scheme of paying EMI. In this scheme the borrower does not have to pay an advance installment to the bank. In this case the entire loan amount (minus the one-time charge and fees) is provided to the borrower.

Calculation of Advance EMI and Arrears EMI

Consider the following example.

loan calculator

Calculate your EMI by Loan EMI Calculator

Mr. Abhi wants to purchase a new car which costs Rs 5 lakh. He approaches a bank to provide him a loan of Rs 3 lakh. The bank is ready to provide him a loan at an interest rate of 12% for 36 months.

The processing fee charged by the bank is Rs.3000/-

The bank provides Mr. Abhi two schemes to pay his EMI, Either Advance EMI scheme or Arrears EMI scheme.

Mr. Abhi asks the bank manager to help him explain both the schemes to which the manager shows Mr. Abhi the following table.



Disbursed Loan amount

(Applied loan -processing fee – Advance EMI)


Down Payment

(Car price – Disbursed loan amount)


Total cost of the car (Down payment + (EMI* No of remaining EMI payments))


Advance EMI scheme (A) 9,866 3,00,000 -3000 – 9866


5,00,000 – 2,87,134


2,12,866 + (9,866 * 35)


Arrears EMI scheme (B) 9,964 3,00,000 – 3000

= 2,97,000

5,00,000 – 2,97,000


2,03,000 + (9,964 * 36)


Difference(A-B) 98 less 9,866 less 9,866 more 3,528 less


As seen in the above calculation Mr. Abhi can save upto Rs 3,528 by utilizing the Advance EMI scheme compared to the Arrears EMI scheme. While the amount saved for this particular example might seem less for loans with high principal the advance EMI scheme can result in significant savings.

Advantage of Advance EMI scheme over Arrears EMI scheme

  • The Advance EMI scheme helps the borrower save a certain amount of money when compared to Arrears EMI.

Advantage of Arrears EMI scheme

  • The Arrears EMI scheme is beneficial if the borrower wants to reduce the initial down payment. If the initial budget is a constraint this scheme can benefit the borrower.

If the initial budget is not a constraint the borrower could choose the Advance EMI scheme and save more money on the loan availed.


One thought on “EMI Calculator

  1. Pingback: Finding a Loan Calculator for your Loan | Financial Tools

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