Loan Prepayment Calculator
See how much interest and time a one-time prepayment saves.
Assumes a one-time prepayment now while keeping the same EMI.
Why Loan Prepayment Saves You Money
Prepayment means paying an extra amount towards your loan over and above your regular EMI. Because home and personal loans charge interest on the outstanding principal, reducing that principal early cuts the interest you pay over the remaining life of the loan. Even modest part-prepayments made in the early years can save a surprisingly large amount of interest.
In India, floating-rate home loans taken by individuals generally carry no prepayment penalty, as per RBI guidelines, while fixed-rate loans and some personal loans may levy charges. Always check your loan agreement first. When you prepay, you typically choose one of two outcomes: reduce the EMI, or reduce the tenure.
Reduce Tenure or Reduce EMI?
When you make a lump-sum prepayment, the lender can either keep your EMI the same and shorten the tenure, or keep the tenure the same and lower the EMI. Reducing the tenure almost always saves more interest, because you finish the loan sooner and stop interest from accruing on the balance for those extra months.
Reducing the EMI, on the other hand, eases your monthly cash flow but keeps you in debt for the original term, so the total interest saved is smaller. As a guideline: choose tenure reduction if your goal is to become debt-free quickly and maximise savings; choose EMI reduction if you need lower monthly outgo right now.
The Formula and a Worked Example
Interest saved is the difference between the total interest on the original loan and the total interest after prepayment:
Interest saved = Total interest (no prepayment) − Total interest (with prepayment)
Each month, interest = outstanding principal × monthly rate (annual rate ÷ 12). A prepayment reduces the principal, so every future month's interest is calculated on a smaller base.
Example: a ₹50,00,000 home loan at 9% annual interest for 20 years has an EMI of about ₹44,986 and total interest of roughly ₹57.97 lakh. Now suppose you prepay ₹5,00,000 at the end of year 2 and keep the EMI unchanged. The principal drops sharply, the tenure shortens by several years, and the total interest falls by approximately ₹9–10 lakh. The calculator above computes the exact interest saved and new tenure for your figures.
Smart Prepayment Tips
To get the most from prepayment: act early in the loan, when the interest portion of each EMI is largest; use windfalls like bonuses or maturity proceeds; and prefer tenure reduction for maximum savings. Before prepaying, compare the interest rate you would save against returns you could earn by investing the same money elsewhere.
Also keep an emergency fund intact rather than using all your savings on prepayment, and confirm there are no prepayment charges, especially on fixed-rate or personal loans. Note that home loan prepayment may affect Section 80C and 24(b) tax benefits on principal and interest, so weigh the tax angle too and verify current rules before deciding.
Frequently Asked Questions
Yes, prepayment reduces the outstanding principal, so all future interest is calculated on a smaller balance. The earlier you prepay, the more interest you save, since early EMIs are mostly interest.
For individual borrowers on floating-rate home loans, RBI guidelines generally prohibit prepayment penalties. Fixed-rate home loans and many personal loans may charge a fee, so check your loan agreement before prepaying.
Reducing tenure usually saves more interest because you exit the loan sooner. Reducing EMI lowers your monthly outgo but keeps you in debt for the full term, saving less overall.
Compare the loan's interest rate with the after-tax return you could earn by investing. If your loan rate is higher than expected investment returns, prepaying is often the safer, guaranteed saving. Consider your risk appetite and tax benefits too.
Prepaying reduces future interest, which can lower the interest deduction available under Section 24(b). Principal repayment may still count toward Section 80C within limits. Verify the current tax rules or consult an adviser before deciding.
Yes, most lenders allow several part-prepayments over the loan tenure, often with no limit on the number for floating-rate home loans. Each one further reduces your principal and total interest.