Paying a home loan Equated Monthly Instalment (EMI) in advance means making an additional payment towards your loan account before the official monthly due date hits. In the Indian financial sector, this extra sum is treated differently from your regular automated debit monthly payments.
When you make an advance remittance, the excess funds are directly adjusted against your outstanding principal amount rather than just covering the interest component. This immediate principal reduction means that future interest calculations by your non-banking financial company (NBFC) will be based on a lower balance, helping you save money over time.
How can you pay your home loan EMI ahead of schedule
You can conveniently make an advance payment using digital channels provided by Bajaj Finance. The step-by-step process allows individual borrowers to manage their liability seamlessly from home:
- Log in to the customer portal: Access the official Bajaj Finance customer portal or mobile app using your registered mobile number and verification One-Time Password (OTP).
- Select your loan account: Navigate to the 'My Relations' or services section and choose your active home loan account from the dashboard.
- Choose the payment type: Click on the loan payment options and select either 'Advance EMI' or 'Part-prepayment' based on your financial target.
- Authorize the digital transfer: Enter the specific amount you wish to pay and complete the transfer securely using net banking, Debit Cards, or Unified Payments Interface (UPI).
What is the difference between advance EMI and part-prepayment
While both options involve paying extra money, they serve different functional purposes in managing your housing debt:
| Operational feature | Advance EMI payment | Home loan part-prepayment |
|---|---|---|
| Primary intent | Clears upcoming monthly dues ahead of time to avoid accidental default risks. | Intended to lower the absolute principal amount to reduce long-term interest. |
| System treatment | Kept as a credit buffer to cover the scheduled monthly instalments next in line. | Deducted immediately from the total interest-bearing principal balance. |
| Minimum threshold | Usually restricted to the exact value of your upcoming monthly instalment. | Generally requires an amount equivalent to at least one or two months of EMIs. |
| Impact on loan structure | Keeps your ongoing loan tenure and regular monthly EMI amounts completely unchanged. | Gives you the choice to either shorten your loan tenure or lower your monthly EMI. |
What are the benefits of making early payments on your home loan
Initiating early payments towards your housing loan offers substantial financial advantages, especially when done during the initial years of your tenure:
- Substantial interest savings: Because housing loan interest is front-loaded, reducing your principal early stops compounding interest from building up on that portion over the remaining years.
- Accelerated debt freedom: Allocating extra funds directly towards principal reduction helps you clear your total debt well before the originally scheduled maturity date.
- Improved credit credibility: Maintaining a proactive repayment record with zero defaults enhances your overall credit profile, showing financial discipline to credit bureaus.
- Enhanced cash flow flexibility: Choosing to reduce your monthly EMI amount after an early principal payment lowers your monthly financial obligations, leaving more disposable income for other investments.
Are there any prepayment penalty charges for home loans in India
According to the master directions issued by the Reserve Bank of India (RBI), individual borrowers who have availed of floating-rate home loans are entirely exempt from prepayment or foreclosure charges. This mandate ensures that you can make advance payments or part-prepayments without incurring any penalty or extra cost from the financial institution.
However, if your home loan is structured under a fixed-rate interest scheme, the lender is legally permitted to levy prepayment charges, which generally range between 2% to 5% of the outstanding principal amount, plus applicable statutory taxes.
