Axis Bank QuikPay Home Loan: A Loan without EMIs

We regularly discuss unique and innovative loan products on this website. A few weeks back, we had discussed Step Down Home Loans launched by a prominent financial institution. In this post, we discuss a unique home loan product from Axis Bank. Axis Bank has recently launched a new product “QuikPay Home Loan”. Let’s find out how this loan product works.

What Is Unique about Axis QuikPay Home Loan?

Under this loan product, there is no concept of EMI or Equated monthly payments. This is because you do not pay the same amount every month. Strange, isn’t it? With Axis QuikPay, you repay the same amount of principal every month. By the way, this is in addition to the monthly interest payments.

For instance, if you take a loan of Rs 50 lacs, you repay Rs 20,833 (50 lacs divided by 240 months) of principal every month. Interest for the month is calculated as usual by multiplying the outstanding at the end of previous month by the monthly rate of interest. These two add up to your monthly payment under the loan. The principal is constant, but the monthly interest keeps changing. Therefore, the monthly payments are not constant.

Let’s take an example. You take a loan of Rs 50 lacs for 20 years. Rate of interest is 9% p.a. Here is how your repayment schedule will look like. I assume that the rate of interest remains the same and you don’t make any prepayments.

Month	O/S at the beginning of the month	Interest paid	Principal Repaid	Monthly Payment	O/s at the end of the month
1	50,00,000	37,500	20,833	58,333	49,79,167
2	49,79,167	37,344	20,833	58,177	49,58,333
3	49,58,333	37,188	20,833	58,021	49,37,500
4	49,37,500	37,031	20,833	57,865	49,16,667
5	49,16,667	36,875	20,833	57,708	48,95,833
6	48,95,833	36,719	20,833	57,552	48,75,000
7	48,75,000	36,563	20,833	57,396	48,54,167
8	48,54,167	36,406	20,833	57,240	48,33,333
9	48,33,333	36,250	20,833	57,083	48,12,500
10	48,12,500	36,094	20,833	56,927	47,91,667
…	…	…	…	…	…
…	…	…	…	…	…
…	…	…	…	…	…
231	2,08,333	1,562	20,833	22,396	1,87,500
232	1,87,500	1,406	20,833	22,240	1,66,667
233	1,66,667	1,250	20,833	22,083	1,45,833
234	1,45,833	1,094	20,833	21,927	1,25,000
235	1,25,000	937	20,833	21,771	1,04,167
236	1,04,167	781	20,833	21,615	83,333
237	83,333	625	20,833	21,458	62,500
238	62,500	469	20,833	21,302	41,667
239	41,667	312	20,833	21,146	20,833
240	20,833	156	20,833	20,990	–

As you can see, the principal repaid remains constant during the loan tenure. For this reason, your monthly payments are not equal either. You can also notice that the monthly loan payment goes down every month.

Comparison: Regular Home Loan Repayment

Under a regular home loan EMI, you pay equal monthly instalments. First, monthly interest is calculated on the outstanding loan amount. Anything left goes towards principal repayment. For more on how regular home loan EMIs work, refer to this post. I post the repayment schedule for the same loan (Rs 50 lacs, 20 years, 9% p.a.). As you can see, only a small portion of your EMI goes towards principal repayment initially. The principal portion of the EMI increases over the loan tenure.

Month	O/S at the beginning of the month	EMI	Interest paid	Principal Repaid	O/s at the end of the month
1	50,00,000	44,986	37,500	7,486	49,92,514
2	49,92,514	44,986	37,444	7,542	49,84,971
3	49,84,971	44,986	37,387	7,599	49,77,372
4	49,77,372	44,986	37,330	7,656	49,69,716
5	49,69,716	44,986	37,273	7,713	49,62,003
6	49,62,003	44,986	37,215	7,771	49,54,232
7	49,54,232	44,986	37,157	7,830	49,46,402
8	49,46,402	44,986	37,098	7,888	49,38,514
9	49,38,514	44,986	37,039	7,947	49,30,566
10	49,30,566	44,986	36,979	8,007	49,22,559
…	…	…	…	…	…
…	…	…	…	…	…
…	…	…	…	…	…
231	4,31,850	44,986	3,239	41,747	3,90,102
232	3,90,102	44,986	2,926	42,061	3,48,042
233	3,48,042	44,986	2,610	42,376	3,05,666
234	3,05,666	44,986	2,292	42,694	2,62,972
235	2,62,972	44,986	1,972	43,014	2,19,958
236	2,19,958	44,986	1,650	43,337	1,76,621
237	1,76,621	44,986	1,325	43,662	1,32,960
238	1,32,960	44,986	997	43,989	88,970
239	88,970	44,986	667	44,319	44,651
240	44,651	44,986	335	44,651	–

Do You Really Save Interest?

In terms of absolute interest cost, you save a lot of money in QuikPay home loan. Since you are paying a higher principal amount (and higher monthly payments) from the very beginning, the absolute interest paid will be lower under the QuikPay Loan scheme. However, the cost of the loan remains the same in both the cases. i.e., in the example discussed above, the cost of loan is 9%.

Under a regular home loan scheme, you pay total interest of Rs 57.96 lacs. Under QuikPay home loan, you pay total interest of Rs 45.18 lacs. That is a neat saving of Rs 12.77 lacs. However, do note the cost of loan is the same in both the cases. You could have achieved a similar effect by prepaying your loan on a regular basis (as we would discuss later).

Should You Opt for Such Products?

Axis QuikPay loan is a unique product. It is a fine product and I do not have issues with the product structure per se. However, it makes little sense to pay a higher rate of interest for this product. Going by Axis Bank website, the rate for Axis QuikPay home loan is about 15 to 20 basis points (0.15% to 0.2%) higher than regular home loan. As a borrower, you should never sign up for such a deal. Till such time you have to pay a higher rate of interest, stay away from Axis QuikPay Home Loan. There is no point paying a higher rate of interest. Axis Bank, in its press release, cleverly tried to show that you pay less even if the rate of interest is higher. This is the kind of gibberish that banks throw at us all the time and we fall for it. Avoid making such mistakes.

Most of us tend to prepay our home loans anyways and there is no prepayment penalty either. Thus, most home loan borrower pay much lesser absolute interest anyways. Remember, even with prepayments, the cost of the loan remains the same. In fact, if you could the prepay the differential principal amount every month and re-amortize the loan every month, you will replicate the Axis QuikPay structure on your own. Remember, this is at no additional interest cost. If you don’t trust me, here is the proof. You can match the numbers in the illustration for QuikPay home loan above.

Month	O/S at the beginning of the month	Monthly Payment (re-amortized every month)	Interest Paid	Principal Repaid	Principal prepayment every month	O/s at the end of the month	Net Monthly Payment	Difference between QuikPay and this method
1	50,00,000	44,986	37,500	7,486	13,347	49,79,167	58,333	–
2	49,79,167	44,866	37,344	7,522	13,311	49,58,333	58,177	–
3	49,58,333	44,746	37,188	7,558	13,275	49,37,500	58,021	–
4	49,37,500	44,626	37,031	7,595	13,239	49,16,667	57,865	–
5	49,16,667	44,506	36,875	7,631	13,202	48,95,833	57,708	–
6	48,95,833	44,386	36,719	7,668	13,166	48,75,000	57,552	–
7	48,75,000	44,267	36,563	7,704	13,129	48,54,167	57,396	–
8	48,54,167	44,147	36,406	7,741	13,092	48,33,333	57,240	–
9	48,33,333	44,028	36,250	7,778	13,055	48,12,500	57,083	–
10	48,12,500	43,909	36,094	7,815	13,018	47,91,667	56,927	–
…	…	…	…	…	…	…	…	…
…	…	…	…	…	…	…	…	…
…	…	…	…	…	…	…	…	…
231	2,08,333	21,702	1,562	20,140	693	1,87,500	22,396	–
232	1,87,500	21,622	1,406	20,216	617	1,66,667	22,240	–
233	1,66,667	21,543	1,250	20,293	541	1,45,833	22,083	–
234	1,45,833	21,463	1,094	20,369	464	1,25,000	21,927	–
235	1,25,000	21,384	937	20,446	387	1,04,167	21,771	–
236	1,04,167	21,304	781	20,523	310	83,333	21,615	–
237	83,333	21,225	625	20,600	233	62,500	21,458	–
238	62,500	21,147	469	20,678	155	41,667	21,302	–
239	41,667	21,068	312	20,756	78	20,833	21,146	–
240	20,833	20,990	156	20,833	0	-0	20,990	–

Clearly, it can be an operational hassle and the bank can limit the number of prepayments in the year. However, you don’t have do this every month. You can prepay every quarter or an annual basis and relax.

Source / Additional Read

1. Axis Bank Press Release on launch of QuikPay Loans
2. QuikPay Home Loan page on Axis Bank website
3. Axis QuikPay Home Loan FAQs