Loan Prepayment Calculator

Getting the most out of a prepayment

A prepayment reduces your outstanding principal immediately, so every future interest charge is calculated on a smaller balance. What you save depends on two choices: when you prepay, and whether the lender shortens the tenure or lowers the EMI.

Shorten the tenure, not the EMI

Take a ₹50 lakh home loan at 8.5% for 20 years, with a ₹5 lakh prepayment after three years. If you keep the EMI at ₹43,391 and let the tenure shrink, the loan closes about 42 months early and you save roughly ₹13.2 lakh in interest.

Choose the lower EMI instead and the payment falls to about ₹38,730 while the tenure stays at 17 more years — saving only around ₹4.5 lakh. The same ₹5 lakh does nearly three times the work when it buys time rather than monthly comfort.

Why early prepayments are worth so much more

Three years into that loan you have paid about ₹15.6 lakh in EMIs, yet the balance has only fallen from ₹50 lakh to roughly ₹46.7 lakh. Nearly ₹12.3 lakh went to interest, because interest is charged on a balance that is still almost the full loan.

Prepaying while the balance is large removes interest that would otherwise have been charged for many years. The same amount paid in year fifteen has only a handful of years left to save on, which is why the benefit collapses towards the end.

Charges, rules, and paperwork

Regulations prohibit prepayment charges on floating-rate loans given to individual borrowers, which covers most home loans. Fixed-rate loans, and many personal and vehicle loans, can carry a charge of roughly 2-5% of the amount prepaid, sometimes after a lock-in period.

Get written confirmation of how the lender applied the payment. If you asked for a tenure reduction, check the revised amortization schedule rather than assuming — some lenders default to lowering the EMI.

Prepay or invest the surplus?

Prepaying a loan is a guaranteed saving equal to your interest rate. An investment has to beat that rate after tax and after risk to be the better choice, which is a high bar against a home loan in the 8-9% range and an impossible one against a personal loan at 14%.

If you were claiming a tax deduction on the interest, your effective loan rate is lower, which narrows the gap. Many borrowers split the difference: prepay enough to remove several years of tenure, and invest the rest.

Example: ₹5 lakh prepaid in year 3

Original loan: ₹50 lakh at 8.5%, 20 years
EMI: ₹43,391
Balance after 36 EMIs: ≈ ₹46.7 lakh
Prepayment: ₹5,00,000
Tenure route: 42 months saved, ≈ ₹13.2 lakh interest saved
EMI route: EMI drops to ≈ ₹38,730, ≈ ₹4.5 lakh saved

Both routes cost the same ₹5 lakh today. The tenure route is worth roughly ₹8.7 lakh more, purely because you keep paying the original EMI against a smaller balance.

Frequently asked questions

Should I reduce the tenure or the EMI when I prepay?

Reduce the tenure if your cash flow can keep the current EMI — it saves far more interest. Reduce the EMI only if the monthly payment is genuinely straining your budget.

Are there charges for prepaying a home loan?

Floating-rate home loans to individual borrowers cannot carry prepayment penalties. Fixed-rate loans, and most personal and vehicle loans, may charge a few percent of the amount prepaid.

Is it better to prepay in small amounts or wait and pay a lump sum?

Earlier is better because interest accrues monthly on the outstanding balance. Regular small prepayments generally beat saving up for a year and paying once, unless the lender restricts part-payment frequency.

Does prepaying reduce my tax deduction?

It can, since a smaller balance means less interest paid, and interest is what gets deducted under the old tax regime. Compare the interest saved against the deduction lost before deciding.

Will prepayment improve my credit score?

Closing a loan early is recorded positively, though the effect is modest. Consistent on-time EMIs and low credit utilisation matter more to your score than early closure.