Loan Prepayment Calculator
See how much interest a part-payment saves and whether your EMI or tenure reduces.
The loan prepayment calculator shows the real benefit of paying a lump sum towards your loan. Because interest is charged on the outstanding balance, every rupee you prepay reduces the base on which future interest is calculated — often saving more than people expect, especially in the early years of a loan.
How to use the calculator
- Enter your outstanding principal — not the original loan amount.
- Add the interest rate and the months remaining.
- Enter the prepayment you plan to make.
- Choose whether you want a shorter tenure or a lower EMI.
How it is calculated
After prepayment the principal becomes P − prepayment. Keeping the EMI constant, the new tenure is n′ = −ln(1 − r × P′ ÷ EMI) ÷ ln(1 + r).
Worked example
₹30,00,000 outstanding, 8.5%, 180 months, ₹5,00,000 prepayment
Current EMI ≈ ₹29,542; after prepaying and keeping the EMI, the loan closes in about 130 months
Interest saved ≈ ₹9,77,000 over the life of the loan.
Who should use this calculator
- Borrowers with a bonus, maturity proceeds or accumulated savings and deciding whether to pay down the loan.
- Anyone comparing the return on prepaying a loan against the return on the same money invested.
- Home loan borrowers choosing between a lower EMI and a shorter tenure after a part-payment.
- People planning a series of small annual prepayments rather than one large lump sum.
Common mistakes to avoid
- Prepaying a low-rate loan while carrying high-interest debt. Clearing a credit card or personal loan first gives a far better return than prepaying a home loan at 8.5%.
- Using the emergency fund to prepay. Money that goes into a loan cannot be taken back. Keep three to six months of expenses aside before making a lump-sum payment.
- Choosing a lower EMI when you can afford the same EMI. Reducing the EMI feels good monthly but saves considerably less interest than keeping the EMI and cutting the tenure.
- Forgetting prepayment charges on fixed-rate loans. Floating-rate home loans to individuals cannot carry foreclosure charges, but fixed-rate loans and some other products can.
- Ignoring the tax deduction on home loan interest. Under the old regime, interest on a home loan can reduce taxable income, which lowers the effective benefit of prepaying. Do the after-tax comparison.
Reduce the tenure or reduce the EMI?
On a ₹30,00,000 loan at 8.5% with 180 months remaining, the EMI is about ₹29,542 and total interest works out to roughly ₹23.2 lakh. Prepaying ₹5,00,000 and keeping the EMI unchanged closes the loan in about 130 months and saves around ₹9.77 lakh of interest.
Choosing the lower EMI instead spreads the smaller payment over the original 180 months. The monthly outgo falls by roughly ₹4,900, which helps cash flow, but the interest saved is far smaller because the balance reduces more slowly. The general rule is simple: if you can comfortably keep paying the same amount, take the shorter tenure. Choose the lower EMI only when the monthly relief genuinely matters.
Prepayment terms explained
- Part-payment
- A lump sum paid against the outstanding principal without closing the loan.
- Foreclosure
- Repaying the entire outstanding balance and closing the loan before the scheduled end.
- Prepayment penalty
- A charge some lenders apply on prepayment. It is not allowed on floating-rate home loans taken by individuals.
- Reducing balance
- Interest charged on the outstanding amount, which is why every prepayment immediately reduces future interest.
- Break-even return
- The rate your money would need to earn after tax to beat the guaranteed saving from prepaying. Often, prepaying wins.
A simple prepayment rule
Compare the loan rate with what the same money would reliably earn after tax in a safe investment. If the loan costs more than the safe option returns, prepaying wins on pure arithmetic, and it wins with certainty rather than on expectation. Nine times out of ten that comparison favours prepaying, because fixed deposits and debt funds rarely beat a home loan rate after tax.
The practical sequence is: clear high-interest debt, build three to six months of emergency savings, then prepay the loan while continuing to invest for long-term goals. And prepay early rather than late — the interest saved is far larger in the first few years, when most of each EMI is still interest rather than principal.
Frequently asked questions
Which is better — reduce EMI or reduce tenure?
Reducing the tenure saves far more interest, because your EMI stays high and the balance falls faster. Reducing the EMI improves monthly cash flow. If you can afford the same EMI, choose the shorter tenure.
Are there charges for prepaying a home loan?
For floating-rate home loans taken by individuals, the RBI does not allow foreclosure or prepayment charges. Fixed-rate loans and some other loan types may carry a fee, often 2–4% of the amount prepaid.
When is prepayment most useful?
Early in the loan, when most of your EMI goes towards interest. Prepaying in the first few years cuts much more interest than the same amount paid near the end of the tenure.