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  Wednesday, 13 June 2012
  56.5K Visits
Hi - I need to know how is Car Loan EMI Calculated. What is the impact of Advance EMI and No Advance Scheme. Which is the scheme one should go for in Car Loan. Also - i've read your article on Advance EMI - a fantastic eye opener - will seek detailed impact on real life car - Hyundai Accent . What is the benefit of not going on with Advance EMI Scheme
12 years ago
Note - The Answer is Edited

Here is detail on Advance EMI :-

Advance EMI in a Car Loan implies that you agree to pay one installment in advance before commencement of loan
As you have mentioned Arrears - It implies that you do not pay any Advance Installment to Bank

How is Advance EMI Paid - Bank Deducts EMI Amount from the disbursement amount which is paid to dealer
Customer ends up paying that EMI Amount to Dealer as against name of short-payment or against the Advance EMI

Advance EMI Gimmick
What prima facie in Car loan Business, Advance EMI is used as a Gimmick scheme by Private Banks and there representatives to show a lower EMI and thus savings to customer - which in actual is not there

Lets do Calculation -
Car : Hyundai I10
Net On Road Price : Rs. 4.5 Lacs
Car Loan : Rs. 3 Lac
Rate of Interest - 12% - taken same for Easy Calculation
Advance EMI - Zero Across all Banks - taken same for Easy Calculation
Tenor - 36 months

A customer is give choice:-
- under Advance Scheme with Private Banks @ Rs.9867
- wherein the Nationalized Banks were offering EMI of Rs. 9963

Customer sees an instant pick of lower EMI and chooses Private Bank with Intent that it will save money
However fact is there is no benefit as such on it - been the margin money amount payable to dealership would increases to the extent of 1 EMI.

See the Attached Calculation

Net all:- In Advance EMI - Though you will see partial lower EMI but your margin money / downpayment amount payable to dealership would be on higher side.
Attachments (1)
11 years ago
thanks for advising something about the two types of emi.

Kindly if possible some other poster may also give his genuine opinion as this would help curb the problem of extra money fetched by the banks from the customers without their knowledge.regards. keep up the good work.
11 years ago
Hello Jaspreet,

Thnx. 2 things to be aware of finance :

- Its easy to manipulate schemes by showing a lower emi or rate of Interest
Never choose a scheme basis low emi. These are gimmicks.

- Always work backwards - know the amount you require to pay during overall tenor of loan. Like
Total Outflow of EMI + Advance EMI if any + Processing Fees

this will give one the complete payment comparison
11 years ago
Thanks for the above information

I am going for loan of 2.5lakhs and for 3 years tenure and i got two option in advance 8083 and in arrears 8155, as the above information i need to choose for arrears only but can you fetch some more information on this, on my loan
10 years ago
what is that 100% finance offer?
10 years ago
Excellent Article & Insights.
Why does the Bank not stop in this practice. Hard earned money of people are going to dealers and Banks in Scams

May i request admin of the section to also highlight this article in the deals offers section, so that people can know hot to save money
Also, is there any EMI Chart - which is available as difference between Advance EMI and Arrear EMI
10 years ago
In case the Bank is maintaining the same IRR (in above case 12%) then there is no harm in going for either advance EMI or arrears. Illustration above is flawed since it is calculationg the 2nd EMI on loan of Rs.2.90 Lacs. Same should also be calculated on Rs.3 Lacs loan.
10 years ago
True Swapnil, Found the issue. We have modified the answer

Thanks for mentioning it !!!
10 years ago

I am taking loan on Honda city and my agent has given me following quotations, deal as below

Loan Amount - 700000
EMI - Rs.15,274
finance rate of interest - 11%
however - He is saying that my loan will close in 58 months

While i check my quote with sbi, i am getting Rs. 15,203 emi and my loan will close in 60 months

Only thing i have to do is pay some kind of advance emi - which agent saying will let me know once loan approves, which is better, is there any
10 years ago
loan amt taken 400000/-
monthly instalment around - 6800/-
duration - 7 yrs
@ 10.95
reducing balance

plz tell what if i pay some amt in adv like 50000/- would it reduce my monthly instalment amt or it would reduce my duration of loan....
smone kindly clarrify it ...thanks in anticipation
10 years ago
Hello Nirmal,

Have you already taken the loan ?
Then its called partial prepayment
In that case - you tenor will be reduced and not your monthly EMI. As you mentioned loan tenure of 84 months - it will come down to around 77 months.

Are you planning to take a new loan ?
Then the amount will be part of downpayment. In that case your loan amount will be reduced as you paying higher downpayment - thus your monthly EMI will be reduced

Is that what you asked for !!
9 years ago
I want a Datsun go+D car on 60% finence
9 years ago
Hello All:

Can you please advise if this is accurate information.
I met the finance guy at Hyundai showroom today. They offered me this deal.

Advance EMI Scheme at 10.250% for 5 Years (59 Months)

On Road Price = 8,26,773
Loan = 5,40,000
Balance= 2,86,773

EMI = 11,448*59
Stamp Duty = 4,520
Down Payment = 3,02,741 (Balance + 1 Advance EMI + Stamp Duty)

Is his calculation correct? Am I overpaying or being duped. Please advise.
9 years ago
@ Dinesh

Well - except slight difference in ROI - its coming at 10.27% instead of 10.25% - everything is correct
> ROI - 10.27% (instead of 10.25%)
> EMI - 11448 (instead of 11443 which comes at 10.25%)
> EMI Tenure - 60 month
> Advance EMI - 1 - payable at dealership
> Payable to Bank - 59 month
> Downpayment - yes its correct - 302741

Hope should help in !!
8 years ago
Hi i m confused which one should i opt for
advance emi or arrears emi ?

100% approval of loan
Ex showroom pruce of car - 1174000=
Principal Loan amt - 1174000=
Rate of interest - 10%
Tenure - 3yrs (36 months)
Processing fee - 0-na-due to existing customer and home bank.

So finally in this situation where i dont have to pay any down payment/ margin money nor any processing fee which is better to go for
advance emi or arrears emi?
8 years ago
@ Rohit

Heres the situation in brief wherein keeping
Interest Rate - 10%
Tenure - 36 months
Loan - 11.74 Lakh

Advance EMI Scheme
> EMI payable to Bank (35 EMI) - Rs 37569
Outflow to Bank - Rs 13.15 Lakh rounded off
However as 1 EMI Paid in Advance to Dealership - Rs 37569 - this will be your down-payment
and Total Outflow would be Rs 13.52 Lakh

Arrear EMI Scheme
> EMI payable to Bank (36 EMI) - Rs 37882
> EMI Paid in Advance to Dealership - NIL
Total Outflow - Rs 13.64 Lakh rounded off

Which is better - Advance or Arrear
Though on face of it choosing Advance EMI scheme looks beneficial as saving of Rs 12K is there for over 3 yrs
But - if you check it other way onwards - you are paying amount equivalent to 2 EMI in 1st month (1 at dealership & 1 at Bank) making Rs 37569 paid in advance. Thus your outflow at the end of 1st month will be excess by Rs 37569 in case of Advance EMI

If you choose Arrear EMI Option and save the advance EMI by ploughing back this amount in Bank as FD for 3 yrs - likely cumulative amount would be Rs 10K to 12K - equivalent to saving shown in Advance EMI

To conclude - there is no difference in between the same -
a) In one you increase downpayment and get slight lower EMI
b) In second you have no downpayment but get in form of slight higher EMI. Saving of downpayment can be ploughed back as FD if you seek for
7 years ago
I want to buy Balano sigma (D v) on Feb 17. I take it by 80% lone. I am salaried person.I buy it through CSD.
CSD Ex Soroom Price-5,73000
Need lone amount. - 500000
Trem- 48 month
Pl tell me ifactiv Emi for me by SBI/icici bank .
Thanking u.

Vikram singh
6 years ago
HiHi...i need swift dizire lxi model... but how much downpayment... please tell me
6 years ago
@ Anupallikishore

By asking for down-payment - do you mean to ask for Bank which provides lowest downpayment
Well - in that case can go with SBI Car loan offering in 85% On road finance.
On this car the lowest down payment would be around Rs 90K

Refer in Maruti Dzire Lxi
Should help !!
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