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Loan Prepayment Calculator
Many borrowers don't realise that a single lump-sum prepayment can save lakhs in interest and shorten their loan by years. This Loan Prepayment Calculator shows you exactly how — enter your original loan details, the prepayment amount, and when you plan to make it, and see the full impact instantly.
Why Timing Your Prepayment Early Matters Most
The best time to make a prepayment is in the early years of the loan. Here's why: in the reducing balance method, early EMIs are heavily weighted toward interest — most of your payment goes toward the lender, not toward reducing your debt. A prepayment made in year 2–3 directly slashes the principal, which in turn eliminates the compound interest that would have been charged on that amount for the remaining tenure.
A prepayment of ₹2 lakh in year 3 of a 20-year home loan can save far more than the same ₹2 lakh prepaid in year 15 — because in year 15, most of the interest has already been paid.
Reduce EMI vs Reduce Tenure — Which Is Better?
Reduce Tenure (Recommended)
Keep the EMI the same and close the loan earlier. This option saves the maximum total interest because each month's interest is calculated on the outstanding balance, and you eliminate more months from the schedule. This calculator shows the tenure-reduction impact.
Reduce EMI
Keep the tenure the same and get a lower monthly EMI. Better if you need immediate cash flow relief. However, you save less total interest compared to the tenure-reduction option since the loan runs for the same number of months.
Things to Check Before Prepaying
- Prepayment charges: Some banks levy 1–5% on the prepaid amount — check if the interest saved exceeds the penalty
- Lock-in period: Many home loans restrict prepayment during the first 6–12 months
- Floating vs fixed rate: RBI guidelines prohibit prepayment penalties on floating-rate home loans for individuals
- Emergency fund: Never use your emergency corpus for prepayment — keep at least 3–6 months of expenses liquid
Frequently Asked Questions
Interest in a reducing-balance loan is calculated each month on the outstanding principal. When you make a lump-sum prepayment, that amount directly reduces the outstanding principal — immediately and permanently. Every future month's interest is now calculated on a smaller balance, which compounds into significant savings over the remaining tenure.
Reducing tenure saves more total interest — because each of the eliminated months would have carried an interest charge. Reducing EMI gives you immediate monthly cash flow relief but the loan runs for the same number of months. If your finances allow it, always choose tenure reduction. This calculator models the tenure-reduction scenario.
For floating-rate home loans taken by individuals, the RBI has prohibited prepayment penalties — you can prepay any amount at any time at no cost. For fixed-rate loans or loans to non-individuals, banks may charge 1–3% of the prepaid amount. Car loans and personal loans may also have prepayment penalties of 2–5% — always check your loan agreement before prepaying.
The earlier in the tenure, the better. In the early years of a reducing-balance loan, the majority of each EMI covers interest rather than principal. A prepayment in year 2–3 eliminates future interest on that entire amount for the remaining 7–18 years. The same prepayment in year 8 eliminates interest for only the remaining 2–3 years — far less savings.
Yes. Most lenders allow multiple partial prepayments throughout the loan tenure (subject to any lock-in or minimum prepayment amount restrictions). Each prepayment compounds the savings from all subsequent ones. For planning multiple prepayments, use our EMI Calculator with the annual prepayment field, which models regular annual prepayments.
