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    Bespoke loans: Know everything about EMI Free Loans

    By Satyam Kumar|13th Sep 2017
    Availing loan from banks or NBFCs is easy if you have a good credit profile. The problem lies in repaying monthly installments regularly due to fixed salary income and fluctuating budget. 
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    A substantial part (about 80 to 90 percent) of the salaries of junior to mid-level executives goes towards rental, groceries, and travel expenses, leaving only a couple of hundred rupees for loan servicing. Millennials are often stressed about their EMI dates and frequently end up borrowing from friends or office colleagues to serve their EMIs.

    This tense situation, however, can be addressed with EMI-free loans, where the committed monthly outflow is a nominal ₹1500 per lakh of the loan.

    What is an EMI-free loan?

    EMI stands for equated monthly instalment, which is a sum of the principal payment and monthly interest. But under EMI-free loans, it is not mandatory for the borrower to pay the principal every month. Only the monthly interest is needed to be paid every month electronically, while the principal can paid at the convenience of the borrower either quarterly, half-yearly, in bullet payments, or as a lump-sum amount, depending on the borrower’s cash flow.

    EMI-free loans are available for periods ranging from 1 year to 5 years with minimal paperwork. The cash is transferred into your account within 36 hours of submitting the loan application.

    Why should one take it?

    Monthly payment obligation under EMI-free loans is 40% lower than a standard personal loan (calculated for 5-year tenure). This can be absorbed easily in your monthly expenses with minimal impact on the cash flow. Lower monthly commitment also means reduced chances of loan default and better credit score.

    For example, the monthly interest payment on a personal loan worth ₹2 lakh at 15% will be ₹4756. On the other hand, a borrower will only have to pay ₹3000 per month at 18% under an EMI-free loan, which reduces your monthly outflow. The principal can be paid later in bullet payments when you create sufficient financial flexibility for yourself. There are no prepayment charges with such loans, which gives you complete control over the repayment plan.

    And ‘how’ exactly are they different?

    The monthly commitment of a typical EMI-based loan remains the same during the entire loan tenure. Such loans are calculated as per the reducing balance method. This means that a larger portion of your payments goes towards the interest during the initial months as compared to your principal amount.

    This problem gets resolved when you choose EMI-free loans. Any payment in addition to the interest will bring down your loan outstanding. This will decrease your overall liability while also reducing your monthly interest for the subsequent month, enabling better overall savings.

    ‘Where’ can I get such loans?

    Such loans can be easily availed on few tech-driven lending platforms. All you need to do is fill your information online, download documents as per the checklist, and book an appointment with the company representative as per your convenience. Sign the documents mentioned in the checklist and hand them over to the representative upon his or her visit. Since such technology-driven state-of-the-art platforms have swift loan origination processes and quick disbursal, the loan amount will reflect in your bank account in about 36 hours of handing over the application.

    ‘When’ can I prepay the EMI Free Loan?

    EMI-free loan is one of the most flexible loan products available in the market today. It gives you a principal-free period of 6 months for which you do not have to worry about principal. After six months, you can make an online loan closure transfer of the credit outstanding. This will lead to loan closure and the NOC will be extended to you by the lender.

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