I took a loan for 3,000,000 at 9.2% from a bank for a period of 4 years (I need this much for my purpose). EMIs (equated monthly installments) are calculated based on a reduced balancing basis and works out to be around 75000 (EMIs have not started as of now). Now, my loan paying capacity per month is 95000. Also, I have access to an amount of 600,000 flat-rate loan at 4% for a year which also have the nice condition that there are no EMIs and I can pay it back in parts or full in any time in the year (4% of the total amount has to be paid back . Given my paying capacity, is it a good idea to take this lesser loan of 600K, prepay the original loan for by that much. In details, finish the lesser loan in 6 months (7*95K), then retake it again and so on.
TL;DR: NO, you should not use it the way that you suggest using it.
I threw this into a spreadsheet. The result that I got by following your method (borrow 600000 and pay the next eight monthly payments with it; then pay 95000 per month against the flat-rate loan until the 600000 is paid) is paying off the loan after thirty-nine months rather than the forty-eight with monthly payments of 75000.
This seems to be due to paying 95000 a month rather than 75000. If I just change to 95000 without playing with the smaller loan, the loan gets paid off in just thirty-six months. That's actually cheaper than the other loan, presumably because you would normally only pay half of the interest on that 600000 (interest payments normally reduce during the loan). Also, the flat 4% is paid on only eight months borrowing, so it annualizes to something like 12% interest.
I tried an alternative that delayed paying the 624000 as long as possible to maximize the interest advantage. However, this still took thirty-six months. It might have produced a small advantage over just paying the 95000, but not much of one.
Borrowing 600000 and paying off 695000 of the larger loan in the first month is the most effective. Then pay 95000 a month on the larger loan, except every twelfth month pay 71000 on the larger loan and the 24000 interest on the flat-rate loan. Take out a new flat-rate loan to pay off the principal on the old one. That's the most effective. It reduces you from thirty-six payments to thirty-five. You pay 72000 in interest on the three 600000 loans and 287427 interest on the 3000000 loan.
In summary, you can pay off the loan in thirty-six months by paying 95000 every month. You can cut one month off that by taking out a 600000 loan in the first month and waiting as long as possible to pay it back. To repay the flat-rate loan, you take out a new one every twelve months. Once the large loan is paid off (after twenty-eight months), pay off the flat-rate loan. That will take seven months.
Note that if they refuse to extend a new loan to you to replace the old one, there's nothing that you can do in that case. You'd have to take the consequences of defaulting on payment of the loan, which might be worse than the original loan. Of course, perhaps you can get them to loan you the same amount for three years at 12%.
I'll leave it up to you if cutting a month off the repayment period is worth enough to justify the headache of the flat-rate loan.
The limited savings primarily caused by the flat-rate weirdness. The 4% rate is comparable to an 8% APR the way that the other loan is calculated. And that's only if you wait as long as possible to pay it back. The quicker you pay it, the less advantage there is from the flat rate. That's why you should pay off the flat-rate loan last if you get it.