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
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.
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.
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
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
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.
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
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
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
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 .
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