What is Pre-EMI?

In certain cases when the full loan amount is not disbursed, one has to pay only the interest on the disbursed amount. This is called pre-EMI. EMI generally consists of repayment of two components – interest and principal amount. However, pre-EMI consists only the interest component. Note that pre-EMI does not affect the outstanding loan amount as principal is not paid.

Pre-EMI is generally applied to under-construction projects for home loans. However, in case there is a delay in possession or completion of the project, the borrower will need to pay pre-EMI unnecessarily. Once the construction is completed, the borrower will need to pay regular EMIs which would be interest + principal.

Example of Pre-EMI

To understand better, suppose Rohan avails a loan of INR 20 lakhs for a new under-construction property. This principal amount is to be disbursed in four different instalments by the lender based on the completion of the project. The last instalment of the loan will be disbursed upon the possession of the house. In this case, until the possession of the property, Rohan would be paying Pre-EMI which is effectively just the interest amount on the amount disbursed.

One must note that if the home loan amount is disbursed at one go, there is no difference between EMI and pre-EMI. Pre-EMI assures lesser monthly payment compared to regular EMIs. This mode can also be chosen when the borrower does not have the capacity to start with regular EMIs directly.

How to Calculate Pre-EMI?

The formula to calculate pre-EMI is the same as that for EMI, viz.

Pre-EMI = [P x R x (1+R)^N]/[{(1+R)^N}-1]

Here, P is the amount disbursed till now

          R is the applicable rate of interest per month

          N is the total duration of the loan in months

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As we explore the concept of pre-EMI, it is important for us to understand the different methods to calculate EMIs. You can make use of various online interest calculators, prepayment EMI calculator, and home loan EMI calculator for added convenience. For added convenience in availing loans, you can opt for instant digital loans. PaySense offers you instant loans of up to INR 2 Lakhs hassle-free in three easy steps. The loan amount is disbursed to your account within a matter of a few hours and you can use this amount as per your need and convenience.